What is Mutual Fund?

A mutual fund can come in two forms, open and closed. A closed fund is, essentially, just a combination of various investments, usually stocks and /or bonds and the investments are locked in at the launch of the fund. the fund manager creates an instrument that represents a share of those investments and then those shares are traded to individual investors.
once the shares are sold initially, the underlying investments don't change (much, there may be some management but it is generally very little) and the shares are sold on an exchange like stock in a single company.

An open mutual fund is what most people are more familiar with. they are similar to closed funds in that seed money goes to purchase a group of investments and the manager creates an instrument that represents a share of those investments, however, if people wish to purchase more shares, usually called "units" of a open fund, the manager simply buys more underlying investments with the new money from these new investors. on any given stock market open day, all units of an open fund are bought and sold from or to the manager of the fund at what is known as the NAV or Net Asset Value of the fund (divided by the number of units outstanding to investors) they calculate this based on the closing price on the exchange for each of the investments held in the fund (including cash, which is worth it's face value)

to avoid arbitrage issues, as much as possible, funds are required to timestamp orders to buy or sell when they arrive and give all orders received during the business day for the fund the same price - but since it is the closing price you can't know what price you will be buying or selling at precisely.

Most mutual funds are generally not suitable for investment time frames of two years but are good long term investments - at least 5, but more appropriate for 7-10 year time horizons

where mutual funds can help a long term savings or retirement portfolio is by reducing risk and volatility.
if you put your money into a single stock, it is possible for that stock to go bankrupt. if they did your investment may be worth nothing and you would lose 100% of the amount you invested. while technically it is possible for all the investments in a fund to go bankrupt on a single day, this is much more unlikely since they might be invested in dozens or hundreds of companies.

also for smaller investors, they generally have lower fees than buying stocks from a broker - though your mileage may vary on that -depending on the fund's fees and how often you would trade your stock. many funds allow you to defer paying sales commission if you leave the money in the fund long enough. this leaves only the management fee- some take as little as .5% - though others may take 3% or more annually

funds may make extraordinary returns in any given year, depending on the investment strategies and fees outlined in the prospectus, but long term fund performance usually comes back in line with more modest growth.
a good fund, with moderate risk, might over the long term get between 7-9% a year, which will double your money in 8-10 years, approximately.

if i had 500 i needed in two years, I'd put it in a much less riskier investment, such as a gic with a reputable bank. or perhaps a savings bond, either domestic or foreign.
with mutual funds you run the risk of losing a significant portion of your money and while your upside is potentially much higher, you would be unlikely to find a fund that beat 10% two years in a row - it is very possible as economies grow but far from certain. when you add in considerations for fees as well, it is not a safe bet when you want to use the money in two years.