Just like a loan you avail from a bank, if you have borrowed the shares from another investor, an interest has to be paid for the lender. The interest rate varies from stock to stock and also depends on tenure of such borrowings. As per SEBI rules, the tenure for lending and borrowing is available for maximum period of 12 months. The lending rate for such lending is not fixed but is determined by the market conditions.
A short sale involves the sale and buyback of borrowed securities. The goal is to sell the securities at a higher price, and then buy them back at a lower price. These transactions occur when the securities borrower believes the price of the securities is about to fall, allowing him to generate a profit based on the difference in the selling and buying prices. Regardless of the amount of profit, if any, the borrower earns from the short sale, the agreed-upon fees to the lending brokerage are due once the agreement period has ended. The Securities Lending and Borrowing mechanism allows short sellers to borrow securities for making delivery.