Rule out simple rules.

WHEN it comes to mutual funds, ``there are no `simple rules''' regarding sound investment decisions, says Reg Green, who edits and publishes the Mutual Fund News Service, in San Rafael, Calif. ``If there were,'' he adds, ``we'd all be very rich.''

Every investment, Mr. Green says, must be looked at in terms of both opportunity and risk, especially in a period of a stalled or dropping market.

``The narrower you make your investment choice, the greater the risk,'' he says. ``But so, too, is the potential reward.''

In this month's issue of his newsletter, written mainly for institutional clients, Green analyzes some``rules'' or assumptions often heard in the market that are designed to ``help investors through the maze of conflicting claims'' about various products. Be wary of the following, he says:

1.``Don't buy a new mutual fund.'' Nonsense, Green says. Had you followed that advice, you would have missed out on six of the top 20 funds in 1986 alone, including G.T. International, Strong Opportunity, and Benham Target Maturities 2010. That's not all: you would also have missed Delcap I, which, ``in its first 12 months was the best-performing of all 1300 funds in the Lipper Analytical Services tables.''

2.``Stick to `all-weather' funds that perform well in both up and down markets.'' But, says Green, this would exclude all capital appreciation, specialty, and small-company funds, which often pay back the most over the long haul.

3.``Don't buy a fund with a big portfolio turnover: Transaction costs undermine performance.'' Green notes that the Massachusetts Financial International Trust-Bond Portfolio, which usually has a 200 percent annual turnover, has beaten most stock and bonds funds during the past five years.

4.``Don't buy a fund with a new manager.'' OK, says Green, how then does one explain the case of John Doney, who took over National Total Income fund in 1987, and led that fund to a remarkable record? If the fund's strategy doesn't fundamentally change, there's no clear case for moving away from a new manager, Green says.

5.``Don't buy a no-load fund that adds a sales charge.'' In 1986, notes Green, Weingarten Equity and Constellation Growth both added sales commissions. When the funds are averaged out over the course of the past five or 10 years, both show substantial gains.

6.``Don't buy a big fund: they're too ponderous.'' Green cites three funds, Washington Mutual Investors Fund, American Mutual Fund and The Investment Company of America, all part of the American Funds Group, as big stock funds that have, over time, outperformed the market.

7.Two conflicting rules here: ``Don't buy a fund which is leading the short-term rankings. Stick to funds that are leading the rankings.'' The first rule would have stopped you from buying G.T. Japan in 1986, ``when it ran 10th of all 1,000 funds for the year.'' The second rule, says Green, would have led you into gold funds in 1987, which, sad to say, have posted losses in the first half of this year.