A contingent deferred sales charge (CDSC) is a fee that may be imposed on an investor when they sell or redeem shares of a mutual fund within a specified period of time after purchasing them. The CDSC is typically a percentage of the value of the shares being sold and is intended to discourage short-term trading and promote long-term investment. The CDSC is contingent upon the length of time the investor holds the shares, with the fee decreasing over time. This fee is disclosed in the mutual fund’s prospectus and is subject to certain exemptions and limitations as outlined by securities laws and regulations.
A CDSC is a fee that is charged when an investor sells shares of a mutual fund within a certain time period after purchasing them.
Unlike other fees, such as front-end loads or annual expenses, a CDSC is only charged when an investor sells their shares within a specified time frame.
The purpose of a CDSC is to discourage short-term trading of mutual fund shares and to compensate the fund for the costs associated with the initial purchase of the shares.
The CDSC period can vary depending on the mutual fund, but it is typically between one to six years.
The CDSC is usually calculated as a percentage of the value of the shares being sold, with the percentage decreasing the longer the shares have been held.
Some mutual funds may offer exemptions to the CDSC for certain circumstances, such as death or disability of the investor.
The Securities and Exchange Commission (SEC) regulates the use of CDSCs and requires that they are disclosed in the mutual fund’s prospectus.
It is possible for a financial advisor or broker to charge an additional fee for selling mutual fund shares with a CDSC, so it is important for investors to understand all potential fees before making a purchase.
To avoid paying a CDSC, investors can choose mutual funds that do not have a CDSC or hold their shares for the duration of the CDSC period.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 5th April 2024.
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