TORONTO (Reuters) - A 53 percent rally in stocks from March lows will not be enough to tempt shell-shocked Canadians back into equities in big numbers in 2010, top mutual funds executives say, forcing the industry to focus on more conservative products.

Balanced and bond funds are expected to see strong demand from cautious investors seeking to limit their downside, a trend that will limit the amount of new cash flowing into the sharply rebounding stock market.

"If there were a theme in 2010 it would be investors saying, 'Give me exposure to a conservative asset mix'," said Doug Coulter, president of RBC Asset Management, a unit of Royal Bank of Canada. Royal is one of the country's largest mutual fund managers with about C$100 billion ($94 billion) of assets.

"People have taken a real gut check," he added, saying that many are moving back to basics in their investing mentality, looking for a lower-risk mix of stocks and bonds with some sort of payout.

Payout of course is key as many investors with large amounts of capital are still parked in money market funds offering little or no real yield.

In its most recent published monthly figures, the Investment Funds Institute of Canada said total investment fund assets fell in October by 1.7 percent from September to C$573 billion.

This is still well up from C$522.4 billion in October last year when the implosion of Lehman Brothers helped trigger a global stock market meltdown.

The benchmark S&P/TSX composite index has delivered an impressive rally from the multi-year lows seen in March.

But fund executives warn the scale of last year's bear market shook investors to the core, particularly baby boomers close to retirement who watched their nest eggs wither.

"What we are seeing is that volatility is still very much on their minds," said Glen Gowland, CEO of Scotia Asset Management, a unit of Bank of Nova Scotia.

Mr. Gowland said that, in the wake of the crisis, investors are changing what they ask of their mutual fund providers, with more onus on protecting wealth and generating income.