Definition of "Exchange Privilege"

A mutual fund feature that allows a shareholder to convert from one fund to another fund within the same mutual fund family. For example, in a bull market an investor placed their money in an aggressive growth fund. If they expected the market to take a downturn, an exchange privilege would allow them to move the money to a conservative fund such as a money market. Mutual funds do not usually charge when an investor takes advantage of an exchange privilege. However, some funds do have specific parameters as to when or how many times an investor may use the exchange privileges.