n NISM Certifications
NSM General NISM
Medium

What does High Watermark mean in performance fee calculation?

Practice question from CWM A B1 — bank. The correct answer is highlighted below with a full explanation.

Options

  1. A

    Performance fee applies every year regardless of losses

  2. Fees are charged only above previous highest portfolio value

    Correct answer

  3. C

    Investor gets fixed returns

  4. D

    Fund manager guarantees capital protection

Why this is the answer

The High Watermark mechanism ensures performance fees are charged only on gains above the portfolio’s previous peak value.

Test yourself for real

Take a full General NISM mock test.

Same duration, same weighting, same difficulty distribution as the real exam — with explanations on every question.