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Mutual Funds Definition and Role
Mutual funds buy (and sell) shares in companies in accordance with  the policies set forth in their prospectus, not according to the  individual needs of an investor, that is, when you invest money in (or withdraw money from) a mutual fund,  the manager buys or sells whatever shares that, in the manager's judgement,  will be the most appropriate ones (consistent with the investment policies). Thus, a large-cap mutual fund manager will not buy the latest hot small-cap stock that will likely be hugely profitable; he/she must choose only between various large capitalization companies. Some exchange-traded funds are fixed baskets of stocks. Suppose you will not invest in a company X as a matter of principle. Unless a mutual fund prospectus says that it will not invest in X, you may well end up having an investment in X at some time because the fund manager bought shares in X. With such an ETF,  you know what is in the basket, and if the basket does not include stock in X  now, it will not own stock in X at a later date. Some exchange-traded funds are constructed based on some index and track the index as a matter of policy. Thus, you will not be investing in X unless X becomes part of the index because Standard or Poor or Russell or somebody changed their minds, and the ETF buys X in order to track the index. Finally, some ETFs are exactly like general mutual funds except that you can buy or sell ETF shares at any time at the price at the instant that your order is executed whereas with mutual funds, the price of the mutual fund shares that you have bought or sold is the NAV of the mutual fund shares for that day, which is established based on the closing prices at the end of the trading day of the stocks, bonds etc that the fund owns.  So, you might end up owning stock in X at any time based on what the fund manager thinks about X.