One careful step at a time, credit unions are moving into the mutual funds business.

Credit umons, like banks, are coming to view funds as important offerings for their customers. But, because credit unions are owned by their customers, they often think twice before offering the customers uninsured investments.

"We wanted to provide our members with these services but also protect them," said Rudy Hanly, president of the brokerage arm of California's Orange County Teachers Credit Union. "We've always been concerned with the welfare of our members first."

Even Big Groups Cautious

Last year, some 25% of all credit union members belonged to a group that offered funds, up from 19% in 1992, according to the Credit Union National Association. But only 6% of credit unions offered funds, indicating that the-trend is largely restricted to the biggest institutions.

Even the big credit unions are showing restraint.

"We have gone into it in a very slow, cautious track," said Ron Snellings, president of $1.8 billion-asset Pentagon Federal Credit Union in Alexandria, Va.

That credit union, the nation's fifth-largest, hit upon the idea of offering mutual funds after observing a significant drop in savings account funds among its most affluent customers. But so far, Pentagon's program has attracted only 200 of the credit union's 412,000 members.

Despite such small gains, few observers dispute that credit unions are getting more serious about mutual funds.

"It seems to be a growing trend," said James Ray, chief executive officer ofCallahan & Associates, a Washington-based consulting and research firm.

Indeed, some investment product marketers are aggressively targeting credit unions as -one-of-the last untapped areas for new business.

"I think they have tremendous potential, said Richard Arnitz, director of institutional marketing for Sentra securities, san Diego.

Credit union regulators, though not averse to mutual funds, have set.up some clear rules for the business.

The National Credit Union Administration requires that credit unions set up special subsidiaries for selling nondeposit investments. And, unlike the main businesses of credit unions, these units donor enjoy tax-exempt status.

For most credit units, however, the real hurdle to getting into the business is more basic in nature: fear of disrupting the communal relationship with members.

That affects not only the-decision to offer mutual funds but the selection of marketing firms, fund managers, and other suppilersv.

"The members own the credit union we're voted in, not hired on," said Roger Sepanski, president of the Indiana University Employees Federal Credit Union, Bloomington.

'More Conservative'

"We don't want to have someone come in that would jeopardize our credibility [with members]," he added.

Carol Nathan, director business management services for Massachusetts CUNA, agrees.

"Credit unions are more conservative about the mutual funds they work with because they have conservative members to begin with," she said. The $1.3 billion-asset Orange County Teachers Credit Union' decided to offer annuities and about a dozen mutual funds through the Credit Union National Association's "Plan America," which sets up broker age operations for credit unions

The credit union also sell through its wholly owned brokerage subsidiary, the Orange County Teachers Service Organization.

Because Orange County's members have an average income of only $25,000 a year, Mr. Hanly said, savings and investments are all the more important to its members. The credit union stresses education about the risks and benefits of investing in mutual funds.

Fear of those risks has kept some credit unions from offering the products at all.

"Mainly it's from a concern that we don't want to confuse the consumer about whether these products are insured," said Jim Blaine, president of the State Employees Credit Union, Raleigh, N.C.

The $3.5 billion-asset credit union provides banking services to the state's teachers and government employees.

Though it is the second-largest credit union the country, the institution has not found a great demand for mutual funds from its customers, Mr. Blaine says.

He acknowledges that many other credit unions and banks are diving into the mutual fund business. But Mr. Blaine doesn't think his organization can offer a better deal to its membership than those programs already on the market.

Moreover, he simply does not see investment products as part of a credit union's mandate.

"We don't think ifs our role," said Mr. Blaine. "Some people say we're a bunch of nuts - well I guess we are."

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