Mutual fund companies in Canada used to have deferred sales charges (DSCs) for some of their funds. Learn what happened to DSCs in the MoneySense Glossary.
A deferred sales charge (DSC), also known as a back-end load, is a commission paid by unitholders when they sell mutual fund units. Paying a DSC is an alternative to paying an upfront commission, or front-end load, at the time of purchase. Often, the percentage charged declines to zero over time, encouraging unitholders to remain invested.
In Canada, regulators banned the sale of mutual funds with deferred sales charges effective June 1, 2022. They felt this compensation model created a conflict of interest for dealers by offering them an incentive to sell funds that might not be in the best interests of their customers, who would be forced to pay redemption fees if they wanted or needed to sell their DSC funds earlier than originally anticipated.
Example: “Deferred sales charges can result in hefty commissions for investors who change their minds and sell in the first few years after investing.”
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