Learn the stock market › Funds, ETFs and bonds › Lesson 1 of 7
What is a mutual fund?
How one share is valued
The fund owns stocks and some cash. Every business day it works out what they are worth, subtracts what it owes, and divides by the number of fund shares. Here is a made-up fund, so that the sum comes out even.
| Step | Amount |
|---|---|
| The fund's holdings are worth | $250,150,000 |
| Minus the fund's debts | $150,000 |
| The fund's value | $250,000,000 |
| Shares in the fund | 1,000,000 |
| Value of one share (NAV) | $250.00 |
| You buy for | $1,000 |
| Fund shares you get | 4.00 |
If you put in $1,000, you get 4.00 fund shares. The fund takes the money and buys more of what it already owns. When you sell, the fund buys your shares back at the next NAV it calculates and sells holdings if it needs to. So the number of fund shares grows and shrinks with money coming in and going out, while the value of each one follows only the holdings.
If the fund's stocks rise 1%, each fund share rises about 1%. It makes no difference how many people buy that day.
Who owns what
The fund belongs to its investors together. The SEC describes it this way: when the fund's holdings rise in value, after expenses and liabilities are deducted, the NAV rises with them. The fund passes its costs to investors by deducting fees from that value, so the fee never appears on a bill.
Kinds of funds
- Stock funds own stocks, often in one country, region or industry.
- Bond funds own bonds and other loans.
- Balanced funds own both.
- Index funds follow an index instead of picking companies, and have their own lesson.
All of them charge a fee, taken from the fund's value a little at a time. How much that adds up to is in the lesson on what fees cost over 30 years. How a mutual fund compares with owning stocks yourself is in stocks or funds.
Test yourself
A fund holds $50 million after its debts and has 400,000 shares. What is one share worth?
Source
- US Securities and Exchange Commission, Mutual Funds, read on 5 November 2026.