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 ?
The emergence of CDSCs operating in tandem with 12b-1 fees completely transformed the economic relationship between the fund industry and the large brokerage firms; in the post-12b-1 world, mutual fund sales became a very big revenue item.
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 0.25% of average net assets per year.
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.
(112.) Why the emergence of CDSC should have come as a surprise is not clear.
(118.) According to an SEC staff study of fund expenses, "[a] CDSC is "contingent' because the sales load is paid only if the shares are redeemed before a specified period of time (often 5-8 years)." REPORT ON MUTUAL FUND FEES, supra note 47.
The maximum 12b-1 fee that can be imposed under Rule 2830(d) has two components: a maximum "asset based sales charge" or CDSC fee of 0.75% of average assets, id.