DEFINITION of 'Exchange Fund'
A stock fund that allows an investor to exchange his or her large holding of a single stock for units in a portfolio. Exchange funds provides investors with a easy way to diversify their holdings, while deferring any taxes from capital gains.
Also known as a "swap fund".
BREAKING DOWN 'Exchange Fund'
There are both private and public exchange funds. The former deals with companies that are not publicly traded, providing investors with a way to diversify private equity holdings. The public funds offer investors portfolio shares containing publicly traded firms.