Both investment types let you invest without choosing individual stocks. The major difference between index funds and managed mutual funds is their earning potential and how they’re managed.
Index funds represent a pool of investments that mirror a market index (Dow Jones Industrial Average, S&P 500 or Nasdaq composite). When the market index produces gains, the index funds also produce gains.
A mutual fund invests in a number of assets (stocks and bonds), and investors can purchase shares of the fund. Mutual funds are monitored by professionals who regularly buy and sell trades inside the fund to maximize potential gains. The value of your investment in a mutual fund rises and falls with the overall fund's performance.