When is a contingent deferred sales charge applicable?

A contingent deferred sales charge (CDSC) is a fee that is applicable when an investor redeems their shares in a mutual fund, specifically in the case of Class B shares. This sales charge is designed to discourage early redemptions and is typically imposed during the initial years of ownership. Investors who redeem Class B shares before a specific period, which is usually several years, may incur this charge as a percentage of the redemption amount.

Class B shares often have lower upfront sales charges compared to Class A shares but will impose a CDSC if sold within a specified time frame. As the investor holds the shares longer, this charge typically decreases and may eventually disappear altogether after a designated holding period is reached. Therefore, the correct answer illustrating when a CDSC is applicable is indeed when redeeming Class B shares.