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.