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A mutual fund is a company that gathers a pool of investments and maintains a professionally managed portfolio. The company purchases the portfolio by pooling the money of many investors. Because these investors provide the money to purchase the portfolio, they own it and any gains or losses generated by the portfolio flow.

Actively managed funds have portfolio managers who continuously buy and sell assets to earn high returns. On the other hand, index funds are passively managed funds. The assets in their portfolios are chosen to match whatever stocks or bonds are contained in their respective underlying indexes exactly.

The funds are so popular with investors because it is less risky than other investments like the stock market. As the pool is larger, the investments are made in large and hence receive better returns. One more benefit to investors is that the mutual fund's companies have the expertise, and the investors need not hold the knowledge of investments.