Compare the returns with mutual funds in the same asset class, such as Canadian equity and the benchmark index, such as the TSX Composite. If the fund consistently beats both, you may have a winner ...

This leads to the next checklist item, and perhaps the most important. Despite what some alternative managers say, every investment carries risk, and every fund has a downside.

In his ground-breaking little book, Gawande describes how Mohnish Pabrai, a $500 million hedge fund manager, utilizes a simple checklist that helps him narrow down investment decisions.

The checklist score for each mutual fund is out of 100. 25 points are separately allocated for performance of the fund, portfolio, operations and risk/reward, adding upto 100.