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Quick question to you guys, I'm not entirely sure I'm grabbing the concept of high water mark for mutual funds. So, if we consider the following example (to see if I understand); I'm an investor in a mutual fund. Assume that the mutual fund measures HWM on a quarterly basis. First question: Will the HWM in the first quarter be the highest point that the NAV reaches? Or will it be the NAV at the very end of quarter?

Now moving on to the second quarter. I've understood that if the highest point in the second quarter is lower than the highest of first, then I'm not supposed to pay any performance fees - but if the highest point in the second quarter is higher than the first, will this be the new HWM? Or must the value at the very end of the quarter be bigger than the first in order to be the new HWM?

As I understand it from Wikipedia, it seems like HWM is the absolute highest point during a measuring period - but finance isn't my strong side.

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    Welcome to Personal Finance & Money. It sounds like you're trying to figure out this definition with respect to very specific documentation you have in front of you. Could you edit your post to include the passages you're trying to decipher?
    – dg99
    Commented Jul 10, 2015 at 15:15
  • Hey, yes, it was as you said and we figured it out. Best, Tingis
    – Tingiskhan
    Commented Jul 13, 2015 at 7:26

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With the caveat that you should always read the fine print...

Generally, the high water mark is the absolute highest mark at end of any quarter (sometimes month) over all the quarters (months) in the past. Intra-quarter marks don't matter.

So, in your example the mark at the end of the second quarter would only be the new HWM if that mark is higher then the mark at the end of every previous quarter. Again, what happened in the middle of of the second quarter doesn't matter.

For hedge funds, the HWM may only be be from the date you started investing rather than over the whole history of the fund, but I would be surprised if that was true for any mutual funds. Though, as I may have mentioned, it is worth reading the fine print.

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  • Thank you for your reply rhaskett, it turned out be the way you described - would be strange otherwise. Thanks!
    – Tingiskhan
    Commented Jul 13, 2015 at 7:27

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