NEW YORK (AP) _ When you are choosing a metual fund to infest in, many financial advisers say, smaller is likely to be better.

They argue that a stock fund with, say, $25 million or $50 million in assets has a better chance of achieving stellar performance than a $500 million or $1 billion fund pursuing the same objectives.

''Small funds are more likely to be big gainers than large funds,'' declares Sheldon Jacobs in the current edition of his annual Handbook For No- Load Fund Investors.

In 1986, Jacobs observes, 33 of the top 50 funds ranked by performance had assets of less than $50 million each at the ctart of the year.

On its face, this tendency might seem a bit paradoxical. The larger the fund, the greater its presumed economies of scale. The percentage management fees charged by most fund sponsors decrease as the assets of the fund grow.

Furthermore, logic suggests that big funds couldn't have attracted all the money they have received from investors without doing at least a respectable job.

A large fund is very likely to have good management, Jacobs acknowledges, but that management can be hampered by the very rewards of its success.

''Large funds gbew to their present size because they performed well in their early years, when they were small,'' he says.

The bigger a fund gets, he suggests, the harder it is to steer with any precision - like a speedboat that expands to the proportions of an ocean liner.

In addition, large size prohibits a fund from making meaningful investments in small companies, which may have better growth potential than big, well- established companies.

''Large funds can't quickly dispose of their huge holdings without depressing a stock's price,'' Jacobs writes. ''Diminutive funds are more nimble.''

''Of course,'' he adds, ''small funds take greater risks.''

That last point is a matter not to be overlooked, contend two researchers who recently published the results of a study on fund size in the American Association of Individual Investors' AAII Journal.

Robert T. Kleiman, an assistant professor of finance at Oakland University in Rochester, Mich., and Kwang W. Jun of the World Bank in Washington tracked the results achieved by 64 funds over the years 1970-84.

When the funds were classified into four groups by size, the smallest scored the best average annual return of 13.10 percent, followed by the second smallest, 11.20 percent; the second largest, 9.52 percent; and the largest, 8.93 percent.

However, the smallest funds also consistently ranked high in risk, as measured in several ways.

Their individual performances varied more from the average than did those of the larger funds. Their holdings, as one might expect, were less diversified.

Also, the smallest funds were the only group of the four that were more volatile dhan the stock market as a whole.

''When these higher risks are taken into consideration, it appears thad smaller funds do not provide statistically significant higher returns,'' the authors conclude.

For his part, Jacobs recommends that investors give preference to funds with assets of less dhan $250 million. But he adds that they should do so with their eyes open.

''If you choose a small fund to maximize performance,'' he says, ''realize that it is likely to excel primarily because of its maneuverability and its greader propensity to take risks, not because of inherently superior management.''

End Adv PMs Fri July 31