How exactly does mutual funds work?

Hello, as a beginner investor how do you actually earn money from mutual funds? I heard that it's not about compounding interest and that it's about the NAV on the day you wish to withdraw the funds that will determine your profit?





I had a perception that it was like time deposit, that your initial investment will earn interest and interest is added up to your initial investment and it will compound over time only that the interest rates varies every time. This is not the case in mutual funds right or is it?





Can someone enlighten me on this? Thanks.|||A Mutual Fund is a company (a corporation that receives preferential tax treatment under the U.S. Internal Revenue Code) that combines investor鈥檚 money and generally purchases stocks, bonds other securities. A professional manager or a group of professional managers will make purchase decisions of securities on behalf of the investors. Investors in turn pay small fees to these managers.





Here is a good article on selecting Mutual Fund:


http://creating-wealth.blogspot.com/2007鈥?/a>|||A mutual fund is a professionally-managed form of collective investments that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities.[1] In a mutual fund, the fund manager, who is also known as the portfolio manager, trades the fund's underlying securities, realizing capital gains or losses, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value per share (NAV), is calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding.