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The mutual-fund industry has had the wind at its back for the past four years as strong equity markets propelled assets ever higher. But regulatory developments could be just as important to the industry's growth in 2007, particularly if stocks lose some of their sizzle.

The Pension Protection Act, which was signed into law in August, has the biggest potential to increase the flow of money into mutual funds. It enhances several savings programs available to individual investors. Perhaps the most important feature is the so-called "autopilot" 401(k) plan, which allows employers to automatically enroll employees in these defined contribution plans and to put contributions from employees who don't choose a specific investment into options that are better for long-term savings.

Vanguard Chairman John J. Brennan says this has big implications for both fund managers and investors. "For more than 20 years, employers have urged workers to enroll in defined-contribution plans," he says in commentary posted on the company's Web site. "But if someone said, 'What should I invest in?' the response was too often a stony silence, as fear of legal liability trumped the impulse to help employees make prudent, long-term investment decisions."

The result is that employees who don't select an investment for their 401(k) are typically enrolled in money market funds, according to Edward Giltenan, spokesman for the Investment Company Institute, an industry trade group. He says these funds, which are low-risk but also have low returns, "don't make sense for a long-term savings strategy."

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