Hard times for mutual funds can mean boom times for unit investment trusts, according to some mutual fund executives.

Unit trusts, a close cousin of mutual funds, seem to be thriving in volatile markets. They attracted more than $5.48 billion of deposits from January through July, roughly even with the $5.58 billion they pulled in during the first seven months of 1993, according to the Investment Company Institute. Mutual fund sales, in contrast, have been off sharply during the same period.

Perry Moore, senior vice president and managing director of Kemper Corp.'s unit investment trusts division, said the instruments now account for 40% of the company's sales through banks.

With bond interest rates rising, investors have been "buying [unit masts] and locking into higher and higher yields," he said.

"They're contracyclical because they do well in down markets," said Jerome S. Contro, manager of the national bank division at John Nuveen & Co. "Our sales have really picked up because of the volatility."

In fact Nuveen's sales of unit masts are up 10% over last year, according to Mr. Contro, and now account for a full 50% of the Chicago-based fund company's sales through banks this year.

Unlike mutual funds, unit investment trusts have a fixed portfolio made up of securities, or units, that are not traded and are put in a trust.

The trusts can consist of almost any security, but more than 85% are made up of tax-exempt municiipal bonds.

Consumers, especially bank customers, who tend to be cautious investors, are drawn to unit trusts because of the conservative nature of these investments, Mr. Contro said.

"It's for investors who am looking for a predictable cash flow stream and a fixed maturity," he said.

The unit trusts, which come in denominations of $1,000, offer more diversity because the investments can be spread across several different kinds of securities, such as municipal and corporate bonds as well as stocks.

By contrast, most individual bonds are generally offered in units of at least $5,000.

The unit trusts pay out a fixed amount of interest either monthly, quarterly or at yearend. Investors receive principal when the portfolio matures.

Unlike certificates of deposit, unit trusts can be redeemed at the current market value, if investors choose to cash out before the maturity date. Customers who cash out of CDs early must pay stiff penalties.

"There is that liquidity, it's not like locking your money up in a 5-year CD." said Chris Wloszczyna, a spokesman for the Investment Company Institute.

Consumers aren't the only ones that benefit.

Banks can keep their overhead down by selling unit trusts - which require little management after the initial investment is made. Because the portfolios are not actively traded, transaction costs are kept to a minimum for both the manager and customer.

As a result, sales charges to investors are typically lower than those on mutual funds and run between 4% and 5%.

"These investments aren't for everyone," said Nuveen's Mr. Contro.

The unit trusts cannot take advantage of market fluctuations to bring in higher returns, and are not ideal for those investors looking for aggressive growth or income.

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