For over fifteen years, I have worked in ETF strategy on wall street and have dissected and traded thousands of different funds. I currently manage an investment portfolio that is heavily invested in index funds
Mutual funds have a clear mandate or strategy, which is defined in their summary prospectus. The fund manager (who is in charge of the fund) is obligated to execute the fund’s stated strategy. Some funds aim to track a specific index- these are known as index funds.
Active funds are the alternative to index funds- active funds permit fund managers to exercise discretion and pick individual stocks and holdings. Their investment objectives will not be as clearly defined as index funds.