A mutual fund is like a fruit basket. Instead of buying an apple, orange and banana separately, you buy a basket with everything.
The basic idea
You put money in the fund. The fund buys many different stocks. If one stock drops, others might go up. That reduces your risk.
Active vs passive management
Active: a human manager picks the stocks. Expensive but sometimes wins.
Passive: the fund follows an index (like the IBEX 35). Cheap and works well.
Low-cost index funds
Index funds (also called ETFs) are cheap and work well. They just copy an index. Long-term, they often beat many active managers.
Fees eat your profits
If you pay 2% annual fees, you need your investment to earn 2% just to break even. Low-cost funds charge 0.1-0.3%. The difference is huge after 20 years.
It's not for getting rich quick
It's so your money doesn't lose value to inflation and grows slowly. If you want to get rich quick, you're wrong.
How to pick one
Look at the fee. The lower, the better. Look at the 10-year history if possible. It's not a guarantee of the future, but it gives you an idea.
The main benefit
You invest a little, get tons of diversification (stocks from many companies), and fees are low. It's simple, effective and works.