Inverse Equity

Inverse equity mutual funds and ETFs are designed to offer a fixed... Inverse equity mutual funds and ETFs are designed to offer a fixed inverse multiple of the daily returns of a particular stock or equity index. The fixed multiple can range from 1x to 3x. For example, if the S&P 500 Index falls 1% on a given day, a 1.5X inverse ETF linked to the index should rise 1.5%. On the other hand, if the index rises by 1%, this same fund should decline by 1.5%. To achieve their objectives, inverse equity mutual funds and ETFs usually enter into derivative contracts with banks and other financial institutions. It's important to note that these funds are only meant for very-short term trading. Because they are rebalanced daily depending on market fluctuations, inverse funds may not produce the same result if held for weeks, months or longer. In fact, it’s quite possible that an inverse fund may fall in value over a longer period, even if the underlying market or stock falls. Inverse equity mutual funds and ETFs are attractive for short-term traders with a large appetite for risk. Last Updated: 12/03/2024 View more View less

Inverse equity mutual funds and ETFs are designed to offer a fixed inverse multiple of the daily returns of a particular stock or equity index. The fixed multiple can range from 1x to... Inverse equity mutual funds and ETFs are designed to offer a fixed inverse multiple of the daily returns of a particular stock or equity index. The fixed multiple can range from 1x to 3x. For example, if the S&P 500 Index falls 1% on a given day, a 1.5X inverse ETF linked to the index should rise 1.5%. On the other hand, if the index rises by 1%, this same fund should decline by 1.5%. To achieve their objectives, inverse equity mutual funds and ETFs usually enter into derivative contracts with banks and other financial institutions. It's important to note that these funds are only meant for very-short term trading. Because they are rebalanced daily depending on market fluctuations, inverse funds may not produce the same result if held for weeks, months or longer. In fact, it’s quite possible that an inverse fund may fall in value over a longer period, even if the underlying market or stock falls. Inverse equity mutual funds and ETFs are attractive for short-term traders with a large appetite for risk. Last Updated: 12/03/2024 View more View less