WASHINGTON - The $12 trillion mutual fund industry will hit record sales of 20% or greater in 2010, driven by continued demand for bonds, alternative investments and international equities, Strategic Insight projects.

"The record flows are remarkable, as they come just a year after the world almost ended," said Director of Research, EVP Avi Nachmany, at a SI presentation ahead of the Investment Company Institute's General Membership Meeting here, where 1,500 executives gathered.

Not only have long-term funds proven their "established equilibrium, but if improvement in the economy moves forward, the industry will have extraordinary results," Nachmany said.

The big question, said Nachmany, like many other speakers at the ICI GMM, is whether investors will return to U.S. equity funds.

"Recently, stock funds have attracted $30 billion to $50 billion a month. Redemptions are back to where they were before the crisis," Nachmany said. "There are early signs Main Street investors are coming back - but will they come back once the gains are exhausted?"

If the market volatility continues as it did Thursday, when the blue-chip Dow fell 995 points at one point before rebounding for a 347.8 close - investors could very well remain on the sidelines, where SI says $10 trillion is parked in money market funds and the bank.