Exchange Fund

"You give me 18,000 shares of Whatever.com, and I'll give you 312,000 shares of this Exchange Fund." You're exchanging shares in your high risk, one-stock-bet company Whatever.com for shares in a diversified index fund, more or less. With no tax. That's a biggie here.

Why would you want to do this? Well, if you were nervous about having sooooo many eggs in your basket of Whatever.com that you couldn't sleep at night, and you just wanted to take market risk instead of individual stock risk, you'd want to make this exchange happen.

For many company founders, for example, the cost basis on their now-trading-at-$100-a-share stock is like a penny, so they'd pay taxable realized gains of $99.99 a share were they to ever sell that stock. So they exchange it for shares in a fund, rather than just sell and pay the tax.