Net new cash flows into tax-exempt mutual funds decreased in July, led by strong declines in national municipal funds, according to the Investment Company Institute.

Overall, $3.4 billion of cash moved into long-term municipal bond funds, the Institute said, a 13% decline over June.

Net new cash flow into national municipal bond funds slipped to approximately $1.7 billion in July, a 24% decline from inflows in June, according to the mutual fund industry trade group.

Among single-state funds, flows in July remained steady at about $1.7 billion.

Net new cash flow includes new money into funds as well as net exchanges, which track cash flows between funds.

Although cash flows into national municipal funds dipped in July, the funds have seen large amounts of cash filtering in since January, compared with the first seven months of 1992.

During the first seven months of 1993, net new cash flows into national municipal funds totaled $13.3 billion, up 49.7% from the $8.9 billion that moved into the funds during the first seven months of 1992.

Among single-state funds, the increase was even stronger as net new cash flows rose by nearly 60%, to $12.5 billion from $7.8 billion in the first seven months of 1992.

"About half of the states have increased their taxes over the last three years and single-state funds have been one of the fastest growing categories in recent years," said Steven E. Norwitz, a spokesman and vice president at T. Rowe Price Associates in Baltimore.

Examining cash flows of the investment management company's municipal funds in June and July 1993, Norwitz said that most of the single-state funds saw modest increases in July. Meanwhile, cash flows of the national funds declined slightly, he said.

"When you look at combined [state and national] tax rates, it makes even better sense to buy single-state bonds," said Richard A. Ciccarone, director of fixed-income research at Kemper Securities Inc.

Ciccarone pointed to strong net sales for single-state funds, which increased 53.2% to $13.97 billion during the first seven months of 1993, compared with $9.12 billion in the year-ago period. National funds saw an increase of 46.1% to $15.11 billion. All long-term Municipal funds had net sales increases of 49.4%.

Net sales comprise new money and reinvested dividends, minus redemptions.

"This is definitely the best position we've seen this year," Ciccarone said.

He attributed the strong results among tax-exempt funds to several factors including declining interest rates and other signs of a faltering economy in July. This may have prompted investors to purchase long-term municipals hoping to lock in rates before they fell further, Ciccarone said.

In addition, "a large portion of this money may have been coming from redemptions of individual bonds" as investors sought the comfort of professional money managers and searched for higher yields than those available on individual securities, the Kemper analyst added.

Heightened public awareness of the new federal personal income tax increases should translate into strong tax-exempt mutual fund sales and cash flows in August as well, Ciccarone said.

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