Learn more about High Watermark Principle

Monday, Dec 5, 2022

We wanted to take a moment to explain the SEBI high watermark principle, which is a rule that applies to Portfolio Management Firms in India.

The high watermark principle states that in order for a fund manager to receive a performance fee, the fund's net asset value (NAV) must first surpass its previous highest NAV. This means that the fund manager only receives a performance fee if the fund has performed better than it has in the past.

In other words, the high watermark principle is designed to align the interests of the fund manager with those of the investors. It ensures that the fund manager is only rewarded for generating returns above and beyond what the fund has previously achieved.

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