TThere have probably been enough books written on how to compare mutual funds to fill up Kennedy Airport, but the basic principles can be written on the back of an envelope. Yet these are principles only a fraction of investors know or follow.

Principal Number One is to know what this fund is really costing you. Studies have shown again and again that most investors go into a fund - often on the basis of a broker's advice - without a clue what its costs are.

There are two kinds of costs, loads and operating expenses.

Loads are the commissions you pay your broker when he/she sells you a mutual fund. These can be horrendous, like 5% or more, and your broker may well "forget" to mention the load at all - or may even tell you it's a "no-load fund" when in fact it carries a big sales charge if you sell within some given number of years. How do you determine for sure if a fund has a load? Read the prospectus before you invest. Or hire a financial advisor on a fee-for-service (not a commission) basis. You should always invest in no-load funds, which historically have performed just as well as load funds (in fact, better, when the load is factored in).

Second, be aware of the operating expenses of your fund. This means marketing expenses, salaries, overhead, etc. involved in managing the fund, as well as profit to the fund developers. Again, you have to read the fund's prospectus to find out what the expenses really are. Look in the expenses section for "Operating Expenses."

Principle Number Two in making mutual fund investments is to not rely entirely on what nearly everybody relies on in making fund choices, namely historic rate of return. Just looking at a list of funds' historic performances for the past few years is a terrible way to pick funds. Too many things can affect those performances, and they are too easily manipulated by fund managements. You should always review rates of return - together with volatility - over eight to ten years or more. Assess these rates of return and riskiness (volatility) in light of your own investment goals. And always read at least the first few pages of the fund's prospectus before investing (no need, however, to wade through the whole thing, say most experts).

Principle Number Three, and last, is to become familiarized with the tax-friendliness of a fund before forking over your money. What does this mean exactly? Some funds produce far more taxable distributions, namely capital gains and dividends, than others. If the fund manager is extremely aggressive about timing the market he/she will buy/sell more actively, resulting in more capital gains distributions for you to pay taxes on each year. Another consideration is dividends. If the funds pays high dividends, higher-tax-bracket investors may be subject to higher taxes.

According to some experts December is the month in which most mutual funds make capital gains distributions, so it's often best to delay purchases until after the first of the year.

How do you research all these points? Again, use the prospectus. You might also try calling the fund's 800 number and discussing them with a representative.

For general research of mutual funds, the best sources are Value Line and Morningstar, both available through larger public libraries. However, be wary of their rankings, as both of these reference sources ignore fund operating expenses (which can have major effects on returns). And they are not very useful in detecting which funds are load funds and which aren't.

A final word: After a few months or so, how do you determine your mutual fund's performance? Can you simply compare its present share price with the share price you paid for the fund?

The answer is no, because distributions of dividends and capital gains will often skew downward the share-price results. Better, say most experts, to compare the total value of your present holdings in the fund versus the total dollar amount you invested. So if you originally invested $20,000 and it's now worth $25,000, your gain is $5,000. Simple as that. Then you can calculate your total return by dividing your gain (or loss) by your original investment.