A **mutual fund** is an investment vehicle that pools money from investors and invests the money in stocks, bonds, short-term money-market instruments, other securities or assets with a predetermined investment objective. The combined holdings the mutual fund owns are known as a portfolio. The fund manager trades the portfolio’s contents, sometimes called its underlying securities, realizes capital gains or losses and collects dividend or interest income.
An **index fund** is a collective investment scheme that aims to replicate the movements of an index of a specific financial market or a set of rules of ownership that are held constant, regardless of market conditions . As of 2007, index funds made up over 11% of equity mutual fund assets in the US .
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Tips.Biz