Their selling point isn't profit, it's convenience. The average worker just wants to check a box on his 401(k) form and be done with it. Mutual funds fill that niche.
Yes, but there are mutual funds that track market indices -- they're not all managed portfolios. So you have the relative stability and security of an index fund, and the convenience of a mutual fund to handle the transactions.
I want to clarify that there's no real security in equities, my use of that term is only relative to other kinds of investments. Everyone should understand that you could lose everything, and there's no deposit insurance or anything like that.
