Contingent Deferred Sales Charge (CDSC)

CDSC is is a fee charged by mutual fund houses to investors of funds with certain classes of shares. This fee is payable at the time of sale or redemptiom. It declines each year until it becomes zero and is applicable for the time that the investor holds the fund units. The time period could range between 5 to 8 years from the time of unit purchase.

Example of CDSC

Let’s say a fund has a CDSC applicable as 3,2,1,0. This means that the fund will apply an exit load of 3% if an investor exits the fund within a year; 2% will be applicable if the investor stays longer than a year, but exits under two years; 1% if he/she stays over two years but under three years; and no exit load will be applied if the investor exits after three years.

Why is CDSC important for investors?

Understanding CDSC can help investors take a well-informed investment decision when it comes to mutual fund investing. Investors must carefully assess the loads applicable on mutual funds before making an investment since these affect the returns on their investments. However, this should be considered along with the mutual fund performance since some good performing funds may charge higher load fees but may also fetch higher returns.