What are 'Exchange Fees'

Exchange fees are a type of investment fee that some mutual funds charge to shareholders if they transfer to another fund within the same group. Other fees shareholders may encounter include sales loads, redemption fees, purchase fees, account fees, 12b-1 fees and management fees.

BREAKING DOWN 'Exchange Fees'

Exchange fees are charged by management investment companies that allow investors to exchange or transfer shares from one mutual fund to another mutual fund managed by the company. Exchange fees are unique in that they only occur when an inter-fund transaction is requested. Mutual fund exchanges are discussed in a mutual fund’s prospectus along with the other fees an investor will pay with investment in the fund. Many mutual fund companies do not charge a fee for exchanging shares.

Exchanging Mutual Fund Shares

The opportunity to exchange mutual funds is often called an exchange privilege. Exchange privileges can be beneficial for investors seeking to shift mutual fund allocations based on market conditions. For example, an investor in a growth equity fund during a bull market may seek to exchange shares for a bond fund if their outlook becomes more bearish. Additionally, do-it-yourself investors may be able to automate fund exchanges at a specified target date in order to shift higher risk allocations into more conservative funds.

Mutual fund exchanges are generally a common practice that is allowed by most mutual fund companies with multiple fund offerings. However, the exchange transactions can require due diligence in order to complete. Most exchanges must be done through special request or with a registered representative. Some platforms will allow the investor to make fund exchanges easily online. Each trading platform and mutual fund account has its own way of handling mutual fund exchanges.

Paying Exchange Fees

Fund exchange details can be found in a mutual fund’s prospectus. Often an exchange privilege will have no cost. However, exchanging shares may trigger taxation if a capital gain occurs. Tax requirements are most common in a fund-to-fund transfer, but converting share classes in the same fund is usually considered a non-taxable event.

Vanguard is one mutual fund company that has an open exchange policy among its mutual funds. The fee is minimal with specific provisions focused on prohibiting frequent trading, which keeps an investor from buying or exchanging shares into the fund over the following 30 days. The Vanguard Total Stock Market Index Fund provides more details on the firm’s exchange policy in its prospectus. Investors in the Vanguard Total Stock Market Index Fund could easily exchange shares from the fund into a more conservative bond fund for greater security.

RELATED TERMS
  1. Mutual Fund

    Mutual funds combine money from many investors to invest in a ...
  2. Exchange Privilege

    Exchange privilege is the opportunity given to mutual fund shareholders ...
  3. No Transaction Fee Mutual Fund

    A no transaction fee mutual fund is a mutual fund with no associated ...
  4. Mutual Fund Timing

    Mutual fund timing is the practice of trading mutual funds according ...
  5. Exchange Fund

    A fund that lets an investor diversify their concentrated stock ...
  6. Investment Fund

    An investment fund is the pooled capital of investors that enables ...
Related Articles
  1. Financial Advisor

    How Mutual Fund Companies Make Money

    Read about the many different kinds of fees and sales charges mutual fund companies can use to generate revenue from those who invest in their shares.
  2. Investing

    Consider These Fees When Evaluating Mutual Funds

    The best way to evaluate a mutual fund is by digging a bit deeper into the fees charged.
  3. Investing

    Looking to Buy Mutual Funds Online? Here Is How

    Learn how to buy mutual funds online; discover which websites offer mutual fund trading services, how to choose a fund and typical fees.
  4. Investing

    4 Mistakes to Avoid When Choosing Mutual Funds to Invest in

    Mutual funds are a great way to build wealth but not all of them are the same. Investors have to be mindful of fees, turnover, redundancy and performance.
  5. Investing

    Trading mutual funds for beginners

    Learn the basics about mutual funds, including the types of strategies available and the different fees they may charge.
  6. Investing

    When to buy a mutual fund

    Doing a little research can help you find out if mutual funds are a good fit for your portfolio.
  7. Trading

    Fund Costs and Expenses

    How much a fund charges for its services is the most important indicator of how well it will perform.
  8. Investing

    Trading Mutual Funds for a Living: Is It Possible?

    Find out why trading mutual funds for a living isn't your best bet, including how funds discourage short-term trading and which options may better serve you.
Hot Definitions
  1. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  2. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  3. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  4. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  5. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  6. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
Trading Center