Most people don't pick individual stocks one by one -- they buy a fund that already holds many of them at once. An investment fund pools money from lots of investors and uses it to buy a basket of securities, so each investor owns a small slice of everything the fund holds rather than one single stock or bond.
The three you'll run into most
Mutual funds are priced once a day, after the market closes, at their Net Asset Value (NAV) -- the value of everything the fund holds, divided by the number of shares. You buy or sell at that single end-of-day price, whatever time you placed the order.
Exchange-traded funds (ETFs) hold a similar kind of basket, but trade on a stock exchange all day long, like an individual stock. Their price moves in real time and can drift slightly above or below the fund's actual NAV during the day, though arbitrage keeps the gap small.
Index funds aren't a separate structure -- they're a strategy that either a mutual fund or an ETF can follow: instead of a manager picking securities, the fund just holds whatever's in a target index (like the S&P 500) in the same proportions. Because there's no active decision-making, index funds are usually the cheapest option.
Why pool money at all: diversification
A single company's stock can go to zero. A fund holding hundreds of companies can't -- some will do badly, some well, and the fund's overall swings tend to be gentler than any one holding's. That smoothing effect is diversification, and it's the main reason funds exist: most people can't afford to buy meaningful amounts of hundreds of individual stocks themselves, but a single fund share gives them all of it at once.
What it costs you: the expense ratio
Funds aren't free to run -- someone has to buy and sell the holdings, keep records, and (for actively managed funds) decide what to hold. That cost comes out of the fund as an expense ratio: an annual percentage of your investment, taken automatically, that you never see as a separate bill. A fund with a 1% expense ratio quietly costs ten times as much per year as one with a 0.1% expense ratio, even though both numbers look small -- compounded over decades, that difference adds up to a lot.
Active vs. passive management
An actively managed fund has a manager (or team) deciding what to buy and sell, trying to beat a benchmark index. A passively managed (index) fund just tracks that benchmark without trying to beat it. Active management costs more -- someone has to do the research -- and most actively managed funds don't actually beat their benchmark over long periods once fees are accounted for, which is the main argument for choosing a low-cost index fund instead.