Long ago – in 2008 SEBI said that you could lend your stocks – made a lot of sense. If you are a promoter or a long only retail investor you could give your shares on ‘rent’ and earn some money. As usual the path to hell is paved with good intentions and SEBI did the handiwork.

A lot of people have asked me ‘Can I lend my long term shares?’. Of course you can. However you should read the following articles before you decide on stock lending.

one is http://blog.investraction.com/2010/01/stock-lending-and-borrowing-scheme-slbs.html

In this article he also refers to an article by Datta. Read that too.

Another article by Mr. Jayant Thakur a famous and reputed Mumbai based C A in Mint is also worth reading.

My view: the whole process is painful, and not remunerative at all.

Caveat: There are many small brokers / sub-brokers/ frauds who are all operating a fraudulent Lending business – by transferring all the shares to themselves. This is too risky. What happens if the guy who takes your shares:

a. dies

b. becomes insolvent

c. declares bankruptcy

d. Is arrested in a terrorism related incident

e. Is raided for income tax

f. His property gets attached – as a guarantor?

g Just runs away with your shares?

Surprising that people do not think of the downside when they enter into agreements! Welcome to the world of lawyers and policemen.

This reminds me last week I met a very very senior officer of the police force. A friend asked me whether it was personal or business. I said business – MINE not his!! He wanted to discuss his investing options on retirement!