What is the actual difference between an index fund and a mutual fund?

Detailed Explanation

The distinction is management style, not legal structure — many index funds are themselves mutual funds. An index fund tracks a benchmark mechanically: it holds what the index holds, in the proportions the index specifies, and changes only when the index does. An actively managed fund employs a manager who selects holdings with the aim of beating that benchmark. Everything else follows from this. Active management costs more because it requires research and trading; index tracking costs less because it requires neither. That difference in cost is the most reliably predictable part of the comparison.