Sales of mutual funds and exchange-traded funds (ETFs) will be strong in 2005 and over the following five years, according to Financial Research Corp., a financial services consulting group.

Mutual fund sales will slow to $195 billion this year and $175 billion next year from $210 billion in 2004, the FRC projected. But sales will increase to $193 billion in 2007 and will rise in each of the next three years, reaching $258 billion in 2010, the Boston-based company said.

Similarly, sales of ETFs are seen dipping to $41 billion this year from $55 billion in 2004, but they are forecast to increase to $61 billion next year and to climb to $164 billion by 2010.

“Once again the mutual fund industry has all the pieces in place for a strong net sales year,” FRC said in its newsletter this month. The industry saw net cash inflows of $108 billion through the first half of 2005 “on the strength” of funds that invest in foreign stocks, it said.

Sales declined in May and June, in large part because of “choppy” equity markets in the U.S. and abroad, said FRC, which expects the slowdown to continue over the next 12-18 months. After that, FRC thinks the industry will benefit from the combination of a “focused distribution effort” and “sustained excess performance in investment management.”

Sales of ETFs have been boosted by increasing awareness of the products among investors and the development of more funds, according to FRC. ETFs are similar to mutual funds, but trade throughout the day like stocks.

Development of new ETFs “remains robust with a plethora of new funds” introduced or registered with the SEC in the first half of 2005 “and many more lined up and ready to launch during the second half,” FRC said.

“It is clear that ETFs are a portfolio management tool that is here to stay,” FRC added. “Institutions, advisors, and individual investors clearly recognize the benefits of ETFs and are incorporating them into their portfolio management strategies.”Contact Bob Keane with questions or comments at: bkeane@investmentadvisor.com.