Inverse ETF

An Inverse ETF is an exchange-traded fund designed to deliver the opposite of the daily return of a specified benchmark index — using derivatives such as short futures, put options, and inverse swaps to profit when the underlying index declines. If the Nifty 50 falls 2% in a session, a hypothetical Nifty 50 inverse ETF aims to deliver +2%; if the index rises 2%, the inverse ETF falls 2%. Like leveraged ETFs, inverse ETFs rebalance their positions daily — creating compounding effects over multi-day holding periods that cause the inverse ETF's return to diverge from the simple inverse of the benchmark's multi-day cumulative return, particularly in volatile markets. This daily rebalancing decay makes inverse ETFs unsuitable for long-term hedging strategies and most effective as short-term tactical tools for expressing bearish views or hedging equity exposure for a single day. In India, SEBI has not approved inverse ETFs for domestic listing — they are available on US exchanges from issuers like ProShares (SH, PSQ, DOG) and are accessible to Indian investors through international investment platforms under the LRS. For Indian equity investors wanting to hedge Nifty portfolio risk, alternatives include buying Nifty 50 put options on NSE, shorting Nifty futures, or simply reducing equity allocation — these exchange-regulated instruments are generally preferred over unregulated offshore inverse ETF products.