A mutual fund is simply a way for people to invest together, through an investment company that allows investors, large and small, to pool their money for increased buying power. This company then invests in a large group of different stocks, bonds, or other assets, and they call this their portfolio of which you own a share by investing. With all of these resources, they can purchase these funds more efficiently and cost effectively. Generally, the larger the fund, the greater its cost advantage in making purchases and sales for the mutual fund. The advantage to you is that the portfolio is professionally managed by people who invest for a living, and hopefully make better choices, both when to buy and when to sell, than you or I would do on our own.
As with any investment, there are ups and downs with mutual funds. Most notably, their performance isn't guaranteed and you could lose money. What is important to know about mutual funds is their rewards and risks, the various categories of funds, and the fees involved in mutual funds.