Gen Z Wants Its 3X Rush, SEBI Is Right to Make Them Wait

India’s Generation Z is now wondering why there are no such investment products as leveraged ETFs that are popular in America. Leveraged ETFs, which use derivatives like futures and swaps to provide double or triple the daily performance of the underlying index, offer the kind of gains that come naturally to people who enjoy F&O and intraday trading. However, even if the demand is justified, it makes sense for SEBI to hold its ground.

Every few weeks, a younger relative or a client’s son sends me a screenshot from some American trading forum, a chart with a ticker like SOXL or TQQQ, and a return that looks more like a lottery result than an investment. These are leveraged ETFs, funds engineered with futures and swaps to deliver two or three times the daily move of an index. There are inverse versions too  “bear” funds that move opposite the index, often just as leveraged so a trader can bet aggressively on a crash or a rally, in either direction, through a single ticker, without ever opening an options chain.

The appeal is easy to understand. India’s Gen Z already lives on “Easy fast growth” inside F&O and intraday trading, chasing the same adrenaline through margin accounts that demand a risk disclosure and active, minute-to-minute attention. A leveraged ETF strips away that friction, investors tap buy the way they would for any ordinary stock while the derivative complexity sits hidden inside the fund. That is precisely what makes it so seductive to a generation that grew up trading on a phone screen and precisely why SEBI is right to keep it off Dalal Street for now.

The numbers from the US make the case better than any regulator’s circular could. A flat $1,000 put into a 3X semiconductor fund like SOXL a year ago would have grown to somewhere between $12,000( 12X return) extraordinary, by any measure. But the same amount unleveraged S&P 500 ETF quietly delivered around 25%. That spread is the entire argument in miniature: spectacular upside is real, but so is the chance of being badly wrong, and the ordinary alternative was never as boring as it looked.

The mechanism most beginners miss is the daily reset. These funds rebalance their leverage every single day, so over a week or a month, compounding can pull the fund’s return sharply away from the “three times the index” intuition especially in a choppy, sideways market. It’s entirely possible to lose money on a 3X fund even when the underlying index ends up flat over several weeks, purely because of this decay. F&O traders face plenty of risk, including the theoretically unlimited losses of writing uncovered options, but they don’t face this particular trap. Leveraged ETFs cap your downside at what you put in you can’t lose more than 100%, the way an option writer can but that comfort is thinner than it sounds once decay starts eating away at a sideways market.

SEBI’s caution isn’t reflexive conservatism. The regulator’s 2024 consultation paper on Specialised Investment Funds floated ideas like inverse strategies for sophisticated investors, but nothing has been approved for retail money yet, and that is not without reason. India already hands retail traders leveraged exposure through F&O; a packaged, one-click leveraged product risks pulling in even less-prepared money casual curiosity rather than considered conviction and that’s a financial literacy problem dressed up as a product question.

In case of the introduction of leveraged ETFs in India at a future date, it is not enough to simply talk about giving the investors more options to choose from. We need to take into consideration the question of whether we have made the investor aware of all the intricacies of what lies behind the seemingly easy process of a button click.

None of this means leveraged ETFs are a bad invention. They’re clever engineering, there is no denying the excitement of a 3X bet going right. But excitement was never the same as suitability. If SEBI does eventually let these onto Indian exchanges, it should arrive with the same guardrails we’ve built around F&O disclosures, perhaps a mandatory comprehension check — not fewer.

Until then, the pause is not about denying investors access to innovation; it is about ensuring that access does not come before understanding.

(Disclaimer: This article is for general informational and educational purposes only and does not constitute investment, tax, or legal advice. The views expressed are those of the authors.)