Picking a mutual fund can be a daunting task, but here are 5 things to look for that I hope will help make the process a little easier. This is part of my weekly Mutual Fund Monday post feature. If you find this interesting or helpful, please read more.

1. Fees.

Over the entire time you own a mutual fund, fees can sap returns without you even knowing it. Fees are also the single easiest thing for an investor to control. You can’t always choose the hottest performing fund, but you can choose the one with the lowest fees. Also, many fund companies don’t tie fees to performance, so your fund manager gets the same financial incentive whether he beats his benchmark or falls short.

Look for low cost index funds, or fund families like Vanguard, Dodge & Cox and American funds. Also, look for families that tie compensation to performance like Vanguard, Fidelity, Bridgeway and Janus.

2. Size.

Fees matter, and so does size when it comes to mutual funds. When a fund gets too large, the manager cannot buy and sell many assets without affecting the price of those assets by his actions. This makes it very difficult to perform well. Think of it as the difference between steering an 18-wheeler and a motorcycle. You want a fund that’s small enough to be nimble and not have to fight against its own momentum.

Look for fund families that don’t let their funds grow too big. Funds that aren’t afraid to close the doors to new investors when the fund reaches a certain asset size. Families like Dodge & Cox, Longleaf Partners fit into this category. Also watch out for funds that announce they will be closing well in advance as this often signifies that the management is looking to make a last minute asset grab, and does not have the best interest of the shareholders in mind.

3. Age.

Pay attention not only to how old the fund is, but also how old other funds form the same family are. For example, avoid companies that seem to launch funds targeting “what’s hot” at a given time – think tech stocks in 1999, or emerging markets in 2006.

Look for fund companies with a long history of concentrating on fundamentals and not simply trying to capitalize on fads. Companies like Longleaf, FPA, and Dodge & Cox fit this metric.

4. Taxes.

Some managers simply don’t care about your tax bill, and that’s fine if you hold those funds in a tax sheltered account like a 401(k) or IRA. But if it’s in a taxable account, it’s an unnecessary drag on your return.

Look for funds with low turn over rate, and a small difference between before and after tax returns.

5. Benchmark.

Lastly, you should pay attention to the benchmark of a fund. You’ll want to know what the fund is using as its benchmark as well as how it performs in relation to that benchmark. But most importantly, you should look at the absolute return on the money invested. For example, if the fund lost only 35% when its benchmark lost 38%, it’s really not getting you much, is it?

Look for how the fund performs is good markets and bad markets. Be sure you can handle that worst case scenario because you can rest assured that it will happen to you at some point in your investing life. Try and find funds that capture most of the upside of the market, while limiting the downside as much as possible. For example, a large cap stock fund that returns 75% of the S&P 500 during a bull market, and loses as much as 50% compared to the S&P 500 during a bear market would get you a smoother ride and potentially larger return, provided you are holding the fund through both periods.

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