How to Participate in Buyback of Shares?
Buyback of shares is when an organisation buys back the shares from its promoters or shareholders, thereby dropping the total number of shares in the share market. These are carried out mainly in two different ways; an Open Market offer and a Tender offer. Let’s dive a little deeper into the buyback of shares meaning below.
What is Buyback of Shares in Stock Trading?
To give a brief definition of the same, the buyback of shares is a process when a business repurchases the stocks from its shareholders that were issued by the same business earlier. This usually happens when the issuing business pays its investor shareholders the value per share of stocks in the share market. The business then decides to reabsorb a few parts of its ownership that it had previously circulated amongst public and private investors through buyback of shares.
How Does Share Buybacks Work?
So, if you are an investor in the stock market, you must be thinking, how share buybacks will work for you. The buyback of shares will allow you to gain the value of your invested amount in the shares that you have allotted as a buyback. Through share buybacks, businesses can distribute the excess cash reserves to the shareholders through the whole process. Moreover, they can do so specifically while repurchasing the market shares at a price with no plans for future expansion.
Eligibility for Share Buybacks
If you wonder, ‘how to apply for share buyback?’, we have your back. The share buyback process holds a compulsory reserved buyback portion of 15% for all the retail investors who own shares of a company of up to ₹2 lakhs. Now, to participate in the buyback of shares, you should have the stocks of the business before the record date as declared by the business related to its announcement for the buyback process. In addition, you also need to have an active Demat account as the shares should be available in your account in dematerialised form.
To recognise the returns of a buyback, you will have to check the fixed value for a share buyback process. Additionally, the validity of the buyback offer matters as well. Finally, the total number of days when you will be permitted to buy back the shares is important as this will be the only timeframe within which the shares/stocks may be bought back by your company.
When investors look for ways to apply for buyback of shares, there is another parameter that they need to keep in mind. This is the record date. This date will help in assessing whether you are eligible to apply for a buyback or will be able to receive a buyback in the first place or not. This record date will be before you have to have a solid portfolio. If you exceed this date with no shares available in your Demat account, you will not be able to apply for a buyback of shares.
Also Read: How to Transfer Shares From One Demat Account to Another?
The Process of Share Buybacks
While opting for a buyback of shares, you will get a Tender form from the business/company. This is the form where you will have to enter the total number of shares of the company that you wish to buy back or tender. Along with the tender form, you will get a ratio of acceptance which will signify how likely the business will accept your request of buyback of shares. This ratio of acceptance will differ from business to business.
In the tender form, there are generally three fields to fill up. Here is what you, as an investor, can expect from a usual tender form from a business:
- The total number of shares you hold from the said organisation as of the record date
- The total number of shares that fit your eligibility criteria to participate in buybacks
- The total number of shares that you will be applying for in a buyback
Once the application process is over, the shares that you have booked for the buyback will be transferred to the business’s R&T agent. The stockbroker or the brokerage firm will also share their acknowledgement of your buyback request in the form of a registered transaction slip or via email. Any offer from the business for buyback tenders that are made over and above the fixed acceptance ratio will be credited back to your Demat account during your transaction process.
So, suppose you are interested in the buyback of shares. In that case, you can do so by applying via tender forms provided by the companies whose shares you have invested in. You will also have to consider every parameter listed above to ensure a smooth buyback process.
Also Read: What is Pledging of Shares?
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Frequently Asked Questions
When a company feels that the share prices of the company are undervalued, and they have additional cash for a buyback, they go for buyback of shares. The buyback of a company also shows that the organisation is self-assured about its performance in the future.
A buyback of shares happens when a business buys its own shares from the stock market at a premium value for several reasons. For example, the business may wish to increase the value of its remaining shares, or increase the overall holding value of its shares, or give less dividend to the share market by buying back its shares from the shareholders.
Yes. However, you will have to submit the duly implemented transfer deed for the transfer of shares in your name. You should also duly fill the offer form and other relevant information as required for transfer. The same documents should be sent to the registrar for participating in the buyback offer.
When the public announcement is made, the offer document will be filed with SEBI. Hence, you can get the information on the SEBI website, i.e., www.sebi.gov.in.