contingent deferred sales charge

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Contingent deferred sales charge (CDSC)

The formal name for the load of a back-end load fund.

Contingent Deferred Sales Charge

The formal name for the load in a back-end load fund. A CDSC is the fee paid when a shareholder sells shares in a mutual fund within a certain number of years. That is, when an investor initially buys a share in a back-end load fund, he/she agrees to pay a third party, usually a financial institution or broker, a certain percentage of the share's value if he/she decides to sell it within five to 10 years, depending on the specific nature of the agreement. The CDSC usually declines by the year until the maximum number of years is reached. See also: B-share.

contingent deferred sales charge

A mutual fund redemption fee that is reduced or eliminated for specified holding periods. For example, a fund might charge a 6% redemption fee for a holding period of less than one year, a 5% fee for a holding period of one to two years, and so forth. Mutual funds with a contingent deferred sales charge also generally levy an annual 12b-1 fee.
References in periodicals archive ?
116) Another typical load fund class of shares, Class C shares, often carries a CDSC of 1% if redeemed during the first year, a 1% 12b-1 fee charged yearly, and, in contrast to Class B shares, may not be redeemable into Class A shares.
The CDSC operating in tandem with a 12b-1 charge is a financing mechanism.
In 1993, in an effort to limit marketing deception relating to fund costs, the NASD issued a rule (125) barring sales representatives or their firms from representing a mutual fund as ""no load' or as having "no sales charge' if the" fund imposes a front-end load, a redemption fee or a CDSC, or a 12b-1 fee exceeding 0.
The firm's electronic order entry system provided an unsupervised method for its representatives to obtain CDSC waivers for customers.
In addition, Citigroup failed to act on "red flags" and provide for effective follow-up and review, or otherwise monitor mutual fund transactions, to ensure that CDSC waivers were granted in accordance with the terms of the applicable mutual fund prospectus:
NASD also found that the improper CDSC waivers entered by Citigroup's registered representatives caused the firm's books and records to contain false information regarding the disability status of customers and their entitlement to such waivers.
The world of 12b-1 and CDSCs is never simple, however.
Using 12b-1 fees in tandem with CDSCs is a way to assure that the fund will have available the money needed to pay the sales commission to the fund's salesperson, who typically receives payment at the time the shares are sold.