7. Cost of funds

Mutual fund investment costs are not insignificant and are often deceptive. Funds will often show only entry and exit loads, leaving out the expense ratio, which is a very significant cost. In addition, the entry load is now a moot point since SEBI has regulated that entry loads are out -- a fund is not doing you a favour with zero entry-load.

Exit loads, which are perceived negatively, are not always bad -- they prevent you from recklessly moving from one fund to another, and keep your focus on the long term. It is just important to make sure the exit load is in line with your investment horizon.

6. Fund size

Fund houses and mutual fund agents often pitch larger funds as better, because raising more assets is a sign of fund performance and investor confidence.

This is only partly true. While a fund should have some size, larger funds are not nimble and their trading activity can move the markets. If a large institutional investor redeems his units from the fund, the fund will have to sell its holdings to meet the redemption request. The sell orders of the fund are likely to move prices and the brunt of this is borne by smaller retail investors.

In addition larger funds struggle with liquidity -- it is hard to exit out of holdings in a cost-efficient and timely way because the trade size is so large.

Also, larger funds are likely to skip smaller potential multi-bagger investments because at the starting point, the investments are too small to make a meaningful difference to the corpus.

5. Portfolio turnover

Portfolio turnover is a measure of the amount of trading the fund is doing and a measure of how aggressively the portfolio is churning the portfolio. Higher amounts of turnover means the fund is holding their investments for a much shorter period, which may be undesirable if you think of your equity investments as a long term investment.

In addition, higher amounts of turnover lead to higher expenses whether it is brokerage, custody, statutory taxes or other expenses. This is a hidden yet important cost because it directly reduces your returns.