The summer doldrums may be coming to an end for banks that sell mutual funds.

Though mutual fund sales have been heading down all year, and declined in June for the second month in a row, bankers see signs that they are pulling out of the slump faster than their rivals at other distribution outlets, such as brokerage firms.

At St. Paul Federal Bank, for instance, the funds business is rebounding, though volume is still about 30% behind last year's brisk pace.

Sales of mutual funds "bottomed in May, but they are slowly picking up" said Gerald W. Thomas, president of Chicago-based Investment Network Inc., the bank's brokerage affiliate.

Indeed, some banks are reporting a surge in business.

"June was actually a great month for us," said James R. Eads, president of Signet Financial Services Inc., the brokerage affiliate of Richmond, Va.-based Signet Banking Corp. He said sales remained strong throughout July.

Not only were Signet's mutual fund sales higher in June than in May, but they topped sales during June 1993, when the business in general was booming, Mr. Eads said.

Marketing Effort

He noted that one reason for the rebound may be that the bank has recently begun focusing more attention on its mutual fund marketing effort.

Signet's experiences run counter to those of the mutual fund industry at large.

During June, fresh inflows to mutual funds totaled $7.7 billion, down from $8.8 billion in May, according to the Investment Company Institute. That's less than half the level of June 1993, when mutual funds attracted $18.7 billion in new money.

Most of the money was flowing into stock funds, which took in $7.9 billion in June, a $2 billion decrease from the May level. These figures represent net new sales - that is, fresh investments minus reinvested dividends and redemptions.

But investors continued to cash out of bond funds. That's bad news for banks, because these funds have been the investment of choice with their conservative customer base.

In all, $120.8 million flowed out of bond funds in June. That's well below the $979 million outflow in May, but it is a far cry from June 1993, when investors pumped $9.8 billion into bond funds.

Rising interest rates have pushed down bond yields, making the investments less attractive. The reversal is taking its toll on many financial institutions whose investment sales efforts were heavily weighted toward bond funds.

"Our experience is very similar to what those numbers indicate," said Joseph Petitti, president of Cal Fed Investment Services, the Los Angeles-based thrift's brokerage unit.

With interest rates volatile, investors - particularly novices - are less willing to buy shares in bond funds, he said.

"It scares people away when the market is uncertain," Mr. Petitti said.

The downturn has had a silver lining, however. While mutual fund sales have tumbled throughout early 1994, sales of annuities have soared.

"Fortunately, the products are countercyclical," said Mr. Thomas of St. Paul Federal's brokerage.

Last year, mutual funds accounted for 60% of St. Paul Federal's sales. This year, mutual fund sales are running about 36% of total nondeposit product sales.

Meanwhile, sales of fixed annuities at the bank are up about 10%. And variable annuities, which are insurance contracts that invest in underlying securities or mutual funds, are making up about a quarter of sales of nondeposit products, Mr. Thomas said.

Because of the way the markets have shifted, annuities are now more popular, agreed Signet's Mr. Eads.

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