Contingent Deferred Sales Charge: $0.00
The Contingent Deferred Sales Charge (CDSC) Calculator helps investors estimate the sales charge incurred when redeeming or withdrawing shares from certain investment funds, such as mutual funds. This fee, also known as a back-end load, typically decreases over time as the investment is held longer. The calculator ensures that investors can plan their withdrawals and understand the costs associated with early redemption.
Formula
The contingent deferred sales charge is calculated using the formula:
Contingent Deferred Sales Charge = Redemption Amount × CDSC Rate
Detailed Formula Components
- Redemption Amount:
- The value of the shares being redeemed or withdrawn, expressed in monetary units (e.g., dollars).
- CDSC Rate:
- The sales charge rate, typically expressed as a percentage. The rate decreases over time based on the holding period.
If Variables Need Calculation:
CDSC Rate = Initial Rate × (1 – (Holding Period / Specified Period))
Where:
- Initial Rate: The maximum CDSC rate at the start (e.g., 5%).
- Holding Period: The time the investment has been held, typically in years.
- Specified Period: The total time over which the CDSC rate diminishes, usually defined in the fund’s terms (e.g., 6 years).
General Terms Table
The following table provides common CDSC scenarios for reference:
| Initial Rate (%) | Holding Period (Years) | Specified Period (Years) | Adjusted CDSC Rate (%) |
|---|---|---|---|
| 5 | 1 | 5 | 5 × (1 – 1/5) = 4.0 |
| 5 | 2 | 5 | 5 × (1 – 2/5) = 3.0 |
| 5 | 4 | 5 | 5 × (1 – 4/5) = 1.0 |
| 5 | 5 | 5 | 5 × (1 – 5/5) = 0.0 |
This table shows how the CDSC rate reduces as the holding period increases.
Example
Let’s calculate the CDSC for an investor redeeming $10,000 in shares with the following terms:
- Initial CDSC Rate: 5%
- Holding Period: 3 years
- Specified Period: 5 years
Step 1: Calculate the Adjusted CDSC Rate
Using the formula:
CDSC Rate = 5 × (1 – (3 / 5))
CDSC Rate = 5 × 0.4 = 2%.
Step 2: Calculate the Contingent Deferred Sales Charge
Using the formula:
Contingent Deferred Sales Charge = Redemption Amount × CDSC Rate
Contingent Deferred Sales Charge = 10,000 × 0.02 = $200.
Result:
The investor would incur a sales charge of $200 for redeeming the shares.
Most Common FAQs
The CDSC compensates the fund company for upfront costs associated with managing the investment. It encourages long-term investing by reducing the charge over time.
To avoid a CDSC, hold the investment for the specified period during which the rate diminishes to zero. Alternatively, check the fund’s terms, as some allow penalty-free withdrawals for specific circumstances.
No, CDSC rates and terms vary between funds. Always review the fund’s prospectus to understand the applicable rates and conditions.