What is a Contingent Deferred Sales Charge (CDSC)?

A Contingent Deferred Sales Charge (CDSC) is a back-end sales charge paid for Class B mutual fund shares within a specified period, and depends on the investor’s holding period. All mutual fund share categories are investments in the same underlying portfolio, and all investors pay a share of the fund’s expenses. Throughout the history of the mutual fund industry, funds have been under public pressure to reduce their upfront sales fees. By offering different share categories, mutual fund companies allow investors to choose whether to pay a lower sales fee, or even no sales fee at all, in return for paying annual expenses for a higher share class each year. Generally, investors can choose from the following three share classes in mutual funds:

Class A — Shares that pay an up-front sales charge

Class B — Shares subject to a CDSC

Class C — Shares subject to a fixed redemption fee

One structure is the contingent deferred sales charge (CDSC), which is also called a “back-end load” or “sales charge.” This is the fee that is charged when a shareholder sells or redeems shares in a mutual fund investment within a certain number of years. Typically, the longer the shares are held, the lower the CDSC, until it eventually reaches zero – usually between five and eight years after purchase.

Before investing in a mutual fund, it is important for investors to know whether the fund will charge a CDSC when the investor redeems shares. If this fee is charged, the investor should understand the magnitude as it is a cost that will reduce potential capital gains.

Key Learning Points

  • A CDSC is a back-end sales charge paid for Class B mutual fund shares within a specified period, and depends on the investor’s holding period.
  • Understanding the CDSC will help investors decide which class of shares to buy when investing in mutual.
  • While investors can avoid paying any up-front sales charges at all by holding the shares beyond the CDSC expiration term, they will also pay higher annual fees at the same time.

How does CDSC Work

The CDSC is unique to mutual funds and is charged when class B shares are redeemed. The sales charge is not paid in advance but is levied on a sliding scale at the time of redemption. The longer the investor has held the shares, the lower the charge.

For example, a CDSC schedule of 6%, 5%, 4%, 3%, and 2% means that shares redeemed in one year will pay a 6% redemption fee, shares redeemed in the second year will pay a 5% redemption fee, and so on. In this CDSC schedule, investors can redeem shares after five years without a redemption fee.

How is CDSC Calculated

The CDSC is a percentage of the original investment in a mutual fund and the calculation is straightforward. The sales charge for the redemption year is multiplied by the amount being liquidated. For example, investors with a CDSC of 5% in year two and liquidating $100,000 will pay $5,000 in sales charges.


Suppose an investor wants to make a $60,000 mutual fund investment. Because he prefers not to pay any fees up front, the investor chooses to purchase Class B shares. The CDSC schedule is 5%, 4%, 3%, 2%, and 1%, which means that the investor must hold the fund for at least 5 years to avoid paying sales charges. In the seventh year, his fund will automatically convert to Class A shares to reduce operating expenses.

The investor, therefore, intends to use this mutual fund as a long-term investment for an 8-year holding period.  However, in the third year, he runs into financial difficulties and must liquidate some of his mutual fund investments. In year three, the sales charge is 3%. He liquidated $10,000 of his Class B shares and paid a $300 sales charge.


Contingent deferred sales charges (CDSC) in mutual fund investments are fees levied by investment funds when they redeem shares. Before investing in a mutual fund, investors should know whether the fund will levy contingent deferred sales charges when the investor sells shares back (redeems) to the fund. For each year an investor holds the shares, the CDSC decreases. Many fund companies will waive back-end fees if investors hold their investments long enough.

Test Your Knowledge

Download the Excel files for the answer

Suppose an investor wants to purchase a mutual fund worth $60,000. The CDSC schedule is 5%, 4%, 3%, 2%, 1% for year 1, 2, 3, 4 and 5 respectively.
In year 3, he requested to liquidate some of his mutual fund investments, which sales charge will he be subject to?

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