CUNA Mutual's decision to quit offering mutual funds next month doesn't mean the industry has soured on the products, industry officials and analysts said.

In fact, a growing number of credit unions are interested in expanding their product line to include mutual funds.

"By offering these types of services, you're hitting the people you want to," said Tun Wai, chief economist for the National Association of Federal Credit Unions. "Credit unions can attract more savings by offering different services."

Representing 31% of the industry's 65 million members, 10% of the country's 13,000 credit unions now offer mutual funds, according to the Credit Union National Association. That's up from 6% in 1993 and 4% in 1992.

Hard data tracking mutual fund sales by credit unions aren't available, but anecdotal information suggests that rising rates generally slowed sales last year.

The rate hikes took a bite out of CUNA Mutual's Plan America brokerage program, which offers a wide range of funds. Plan America, with about 600 clients, is the largest mutual fund provider for credit unions.

"As most third-party marketers found last year, fund sales were less than what we hoped for," said Joseph Tripalin, vice president of CUNA Brokerage Services.

Plan America mutual funds attracted about $425 million in 1994, down from $470 million in 1993, Mr. Tripalin said. However, he said, credit unions experienced smaller declines than other mutual fund providers.

Mutual fund sales were sluggish for the first quarter of 1995 as well, but Mr. Tripalin predicted that sales will pick up soon. The recent strong performance of the stock market and the apparent downward trend in interest rates are encouraging signs, he said.

Some institutions, such as Los Angeles-based Xerox Federal Credit Union, experienced a boom in sales last year, according to chief executive Kevin Foster-Keddie.

Xerox Federal, which operates its own mutual fund program through a subsidiary, almost doubled its assets under management to $100 million last year, he said. In the first quarter of 1995, the subsidiary has attracted about $39 million.

Charles W. Filson, president of the consulting firm Callahan & Associates, predicted that a venture similar to CUNA Mutual's effort - to create a mutual fund by credit unions for credit unions - would happen in three to five years.

"Sooner or later, credit unions are going to develop a credit union way to deliver funds to members," he said.

The problem with the three mutual funds CUNA Mutual offered to credit union members was with distribution, not the products themselves, sources said. The program was run in conjunction with CUNA and T. Rowe Price.

Rather than pitching the funds face to face, the companies tried a direct marketing approach with the no-load funds they began offering on Jan. 1, 1994. That tactic didn't sit well with relatively conservative credit union members.

"CUNA Mutual and CUNA thought that they could get over the hurdle (of direct marketing) because of the strong affinity credit union members feel for their institution," said Meredith Callanan, vice president and marketing manager for Baltimore-based T. Rowe Price. "That affinity is very strong when it comes to traditional depository products, but it's not there when you're talking about investments and long-term financial planning."

Most members need a face-to-face transaction to buy mutual funds, she said.

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