Consumers in India are often victims of a syndrome. There is no official epithet for this syndrome, so I’ll just call it the ‘bigger-is-better syndrome’. What this syndrome makes us do is that under its influence, we tend to believe that the bigger a company is, the better it should be. We purchase all sorts of goods and services under this belief. After all, if thousands of people trust a particular company or brand, then it must be good, right? Well, this might be true for FMCG products, or consumer services, or even restaurants. But when it comes to mutual funds, the truth is that bigger is not always better.

Quite often, fund salesmen use this bigger-is-better theory while selling a fund. And to a common investor, this theory does make sense. After all, if a particular fund, or fund company, is already handling crores of rupees, then it seems obvious that it is doing a good job of it. This sounds logical, but it does have a lot of things unsaid. Like, the fact could be that the AMC in question could just be a lot better at marketing itself. And there is a cascading effect as well, that makes the bigger become even bigger without any commendable performance improvement.

So, does size really matter? The answer to this question is that it mostly matters only to those who are a part of the investment business. To investors, size shouldn’t matter. The reason I chose to talk about size this week is that as per May 31, 2009 data, the fund industry now manages assets worth Rs 6.3 lakh crore.

This is a remarkable recovery – in terms of size – after the industry’s post-crisis low of Rs 4.6 lakh crore at the end of January. May 31 was a landmark day for India’s biggest AMC as well. Reliance Mutual Fund became the first Indian fund company to cross Rs 1 lakh crore. The other top five AMCs – HDFC, ICICI Prudential, UTI and Birla Sun Life – also manage more than Rs 50,000 crore each.

This news will no doubt turn out to be another selling point for fund companies. The bigger-is-better theory will be pushed, but this is what investors should guard against. Investors should understand that there is absolutely no correlation between the size of a fund and its suitability as an investment.

In fact, the larger the fund, the lesser manoeuvrability it has. A small fund can move in and out of stocks much more easily. However, if a fund invests primarily in large-caps, then its size makes no difference. It is moving in and out of mid- and small-caps that large funds find difficult. But then, investors should ideally be investing only in well performing large-caps funds, of whatever size they may be.

Overall, size matters only in extremes. A very small fund should be avoided because small funds and small fund companies rarely have a performance to speak of. And they face a completely different set of problems. Apart from that, size rarely has any impact on performance. Let the fund company owners have their fun and parties with their big sizes, you as an investor, should concentrate on performance. It’s the performance that will be fun for you.

The author is CEO, Value Research