FOR some time, the mere mention of unit trusts as an investment vehicle was enough to inspire either raised eyebrows or yawns. That perception has now changed and, despite a recent hiccough because of the volatility of the stock market, unit trusts appear to have come of age. Not so long ago, funds were widely regarded as the poor cousins of the investment community, especially when compared with other more direct methods of entry into the dynamic Asian equity and other markets. As a result, they were often overlooked and had poor penetration into the investment community. At one stage, only two per cent of Hong Kong's six million people had stakes in unit trusts and mutual funds, while up to 15 per cent were involved in Hong Kong stocks and 20 per cent in insurance policies. But last year, for the first time, the net flow of retail investor money into unit trusts and mutual funds marketed in the territory topped US$1 billion (about HK$7.72 billion). The activity report from the Hong Kong Investment Funds Association (HKIFA) - the umbrella group for the funds - showed retail investment during last year's bull market at a five-year high. Total sales - the amount of cash moving into the funds - during the year was just under HK$4 billion. Circumstances changed earlier this year and Hong Kong investors started moving out of their existing unit trusts in March. The industry reported net redemptions of US$150 million. This broke a two-year run of net sales. But fund managers still remain cautiously optimistic on Asia, despite the slide in share price values during the first half of this year. Stewart Aldcroft, executive director at Wardley Investment Services, said so far this year Japanese funds, especially warrant funds, had been ''way out in front'' for performance. He said virtually anything from Japan had done very well. However, the picture was markedly different elsewhere in Asia. ''Anything in Asia is going to be in negative territory when you see the Hong Kong market down 20 per cent, and many of the other markets down at least that or more.'' He said the market had already ''written off'' the performance of the first half of the year. The performance of unit trusts this year depended on the second half showing of last year, but this was exactly the same position as last year, which had seen major growth in general public interest in unit trusts, he said. Spurred by last year's surge of interest in unit trust and mutual funds, the proportion of Hong Kong people owning units - according to unofficial surveys - rose to four per cent of the population. While that remains much lower than participation levels overseas, the popularity among investors apparently continues to grow. Overall, there are around 600 unit trusts and mutual funds which are members of the HKIFA - a total which has not altered appreciably since last year. However, the asset size of those funds has grown substantially. In 1992, assets in the funds totalled US$17 billion. By the end of last year, the total had grown to $25 billion and, by the end of the first quarter this year, total assets in the funds stood at $30 billion. Andrew Lo, deputy chairman of the HKIFA, said the attraction of unit trusts was they provided investors with a simple and economic way to invest in a wide selection of financial securities such as shares, convertibles, warrants and bonds. He said the attraction of trusts was that, for a relatively small amount of money, they offered a cheap entry into major markets like equities. These funds could spread their risk, because of their size, among a number of investments. However, a small investor might be forced to concentrate on one or or two shares and, therefore, expose himself unnecessarily. Funds also allow Hong Kong investors to participate in overseas markets, enabling geographical diversification of investment portfolios. Mr Lo said the popularity of unit trusts was still being measured and he could not officially confirm the four per cent penetration of the market. However, a consensus among the industry was that this was the correct level. Mr Lo said the growing awareness of unit trusts was due to a combination of factors, including general investment returns. Returns in some Asian funds - focusing on Hong Kong, Malaysia and Thailand, for example - saw returns exceeding 100 per cent. Another factor behind the increasing popularity was that a number of banks in Hong Kong were now acting as agents to fund companies, and were selling unit trust units. ''If you compare banks against the typical unit trust intermediary, the banks have more penetration because of their local name, reputation and their branch presence,'' Mr Lo said. ''The fact that a number of investment companies and banks have increased their levels of promotions in both newspaper and in television advertising has boosted penetration of unit trusts.' He said it had been more than 12 months since the Securities and Futures Commission had allowed fund companies to advertise on television and this had helped enormously. ''The consciousness of the general public has been increased [because of this],'' Mr Lo said. ''But there is still a lot more work that can be done to increase the level of awareness.''