DEFINITION of 'Exchange Privilege'

The opportunity given to mutual fund shareholders to exchange their investment in a fund for another within the same fund family at no additional cost. This privilege allows investors to switch funds when market conditions change.

BREAKING DOWN 'Exchange Privilege'

For example, you might want to be in an aggressive growth fund when the market is going up, but when the markets start heading downward, you may switch to a bond fund.

There is usually a limit to how many times an investor can switch funds within a year.

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