Exchange funds are designed for long-term investors. You are diversified the moment you invest, but a seven-year holding period is required to unlock the core tax benefit: redeeming a diversified basket from the fund on a tax-deferred basis.
That said, investors can redeem earlier if needed. Here’s how early redemptions work.
Before 7 years
Before the seventh anniversary, the tax code requires that redemptions be satisfied by returning your original contributed stock, rather than a diversified basket.
A few important points to understand:
When you invest, you receive fund shares equal to the value of the stock you contributed.
From that point on, your economic exposure tracks the fund, not the individual stock you contributed, i.e., you are diversified immediately.
If you redeem early, you exchange your fund shares back for the stock you originally contributed, subject to the value of your fund shares at the time of redemption (See example below).
Early redemptions are done in-kind with the stocks you contributed. They are not a taxable event.
Early redemptions are subject to a 1–2% redemption fee, as outlined in the fund’s governing documents.
Example:
You contribute $1 million of Walmart (WMT) stock into Bedrock, our Flagship exchange fund benchmarked to the S&P 500. On the fund’s close date, your contribution is exchanged for $1 million of fund shares.
After three years, let's assume the fund has appreciated by 20%, so your fund shares are worth $1.2 million. You request an early redemption.
If WMT has also appreciated by 20%: You receive all of your WMT shares back.
If WMT has appreciated more than 20%: Your redemption is capped at the value of your fund shares ($1.2 million) in WMT stock.
If WMT has appreciated less than 20%: You receive all of the WMT shares you originally contributed, but the full value of your fund shares cannot be redeemed at that time. The remaining value becomes eligible for redemption once you reach the seven-year mark.
Note on Lockups
Our Flagship series of exchange funds (for Qualified Purchasers) does not have a lock-up period. You may request a redemption at any time after investing.
Our Access series of exchange funds (for Accredited Investors) has a 2-year lock-up period, during which investors cannot withdraw their contributions. Learn about the lock-up period.
After 7 years
Once you are past the seven-year mark, you can redeem a diversified portfolio on a tax-deferred basis. No redemption fees are applicable after seven years, and your original cost basis carries over to the stocks you withdraw from the fund.
See more details about redemption AFTER seven years.