According to Smart Money, if you are looking to build your mutual fund portfolio, buying an index mutual fund can be one of the easiest, most effective ways to go. With as little as $500, an investor can buy an index fund that invests in 500 different stocks. Individually, these stocks would cost tens of thousands of dollars.

Indexes are a group of stocks chosen to represent a certain market segment. The S&P 500 index (the index most widely tracked by index funds), for instance, consists of large-cap stocks. The Nasdaq Composite index is heavy on technology companies. There are other indexes as well.

One way index mutual funds are different from actively managed mutual funds is that they do not involve any stock picking by investment professionals -- they simply seek to replicate the returns of the specific index. Because they do not need as much hands-on care, index mutual funds have much lower fees. For example, one index mutual funds has an low annual fee of 0.18% of your investment. By comparison, the average large-cap fund charges more than six times that much.

Said to be iffy for short-term investors, index mutual funds can be a valuable addition, to your long-term investment portfolio.

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