Since market indexes are widely recognized and followed, creating a fund that copied their performance was a win-win.
Investors can get exposure to a large variety of investments without having to buy single shares of each one. If you had to buy and track each one separately, it would kind of defeat the purpose of "passive investing".
Financial companies get a low cost, low risk way to earn a commission (i.e. management fees).
But that doesn't mean you'll earn the same return as the index. The fund will typically underperform the index it follows by a fixed amount. That amount is the the expense ratio...or the fee that you pay to the firm for providing the fund.
Therefore, the expense ratio is recognized as the most important factor for choosing between similar funds.
This is a great way to select options based on reputation/management practices. But it doesn't tell you what types of assets are in the fund(s) (i.e. what you're buying).
It's in the best interest of each company to offer as many different funds as possible, but that doesn't mean they're meet your needs. For example, check how long the fund has been around, and how long a particular manager has managed the fund. This will let you know who's been responsible for fund performance (both good AND bad)!
The next natural grouping is by the asset class:
If you're thinking of using a leveraged and/or inverse fund, BE CAREFUL. You are buying a fund that tries to match the percent increase or decrease each day (verses the price movement from the previous days close).
Matching a daily percentage move creates a compounding problem (see our compound interest example for more info ). So you are not purchasing a fund that matches the performance of an "unleveraged" fund over a long period of time.