I love acronyms. They make everything seem so much fancier than it really is. I feel more important when I use acronyms. Then, when I see the look of fear and confusion in the eyes of the person I’m speaking to, I feel so powerful. I roll my eyes and sigh, and then go on to explain the meaning behind the jumble of letters (seriously, if your financial advisor, agent or CPA do this, you need to find a new one).

CDSC stands for Contingent Deferred Sales Charge. All it means is that it is a deferred sales charge that is contingent on some action by you. So, it is a sales charge that is not charged when you buy a mutual fund, life insurance policy or annuity but instead is charged if you break the contract by selling the mutual find or surrendering the life policy or annuity within a certain time period—usually 5 or fewer years after buying it.

CDSC charges usually have a sliding scale percentage amount between 1% and 5%. The earlier you sell the mutual fund or surrender the annuity/ life policy, the higher the CDSC you will pay. After 5 years there is generally no more CDSC and you can sell/surrender without penalty.

The reason behind the penalty is that the insurance company or mutual fund wants to keep your money working for them as long as possible. When you sell, they can no longer make money from your money. The penalty works to encourage you to keep it with them for at least 5 years by which time they have hopefully made some profit on it.

Please keep in mind that every contract and mutual fund is different and this is just a general guideline.