Why would anyone invest in mutual fund vs index fund? I am new to the mutual fund world, but have heard opinions from various “trusted resources”. Any enlightening comments?

If I were you I wouldn't invest in anything at the moment except for precious metals.

Are you aware of the state of the world economy? It's time I think to sit back and consolidate and batten down the hatches. Try this one
http://www.kitco.com/ind/willie/sep052008.html

There are numerous sites to read. One of the best is www.lemetropolecafe.com where the best minds in the world write. You can get a free two week trial. Then you see what is really going on in the world and what mainstream don't know and what elite don't want you to know.

Risk involve in mutual fund is always less than that of investing directly in stocks and again, the return is not bad at all.

I would also stick to precious metals or Forex.

in index funds, fund managers place an equal amount of "bet" on stocks making up the index. this is far less complicated to maintain so commissions are the least.

in mutual funds, and depending on what type of fund it is, the bets are in different proportions. how do they decide the proportions? they do a lot of market research, which makes commissions higher for these types.

which one to invest on? depends on what fits your risk/reward personality, and how well you think your chosen fund will perform. no guarantees here, keep in mind.