In more detail
Each share of the fund represents a slice of the whole portfolio. Its price, the net asset value (NAV), is calculated once a day after markets close as (assets − liabilities) / shares outstanding, and all orders placed that day trade at that price. Funds charge an expense ratio every year and sometimes a sales load on purchase or sale. Actively managed funds try to beat a market; index funds simply track one at lower cost. Exchange-traded funds (ETFs) are similar baskets that trade on an exchange throughout the day.
Why it matters
A fund gives instant diversification for a small amount, but costs, loads and taxable distributions reduce what you keep. Over long periods most actively managed funds have trailed comparable index funds after fees.
Example
A fund holds $50,000,000 of assets with $500,000 of liabilities and has 2,000,000 shares: NAV = (50,000,000 − 500,000) / 2,000,000 = $24.75. Investing $5,000 buys 202.02 shares. With a 5% front-end load, only $4,750 is invested, buying 191.92 shares.