Glossary
Exchange Fund
An exchange fund is a pooled investment vehicle that allows investors—typically with large, concentrated positions in a single stock—to exchange their shares for a diversified portfolio, helping reduce risk and defer capital gains taxes.
Who typically uses exchange funds?
High-net-worth individuals or company executives with large holdings in a single stock who want diversification without triggering immediate capital gains taxes.
How does an exchange fund work?
Investors contribute their stock to a fund in exchange for a proportional interest in a diversified portfolio. After a required holding period (usually 7 years), they can redeem a mix of assets.
What are the tax advantages of an exchange fund?
It allows investors to defer capital gains taxes by avoiding the immediate sale of their concentrated stock holdings.
What are the risks of using an exchange fund?
These funds have long lock-up periods, limited liquidity, and are usually only available to accredited investors. Market risk still exists, just more broadly diversified.
Are exchange funds the same as mutual funds?
No. Exchange funds are private investment vehicles used for tax and diversification purposes, while mutual funds are public investments available to most retail investor
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