Share Buyback: Benefits, method & Purpose of Buyback

In the existing wide array of financial instruments and company economics in the Indian market and elsewhere, there are a lot of viable options that have been put into practice by and large in the economic segments. The share buyback is one such strategy that is often adopted by companies with a view towards redemption of their own stock. As the name implies, share buyback is the practice of repurchase or buying back of its own shares by a company. 

Purpose of Share Buyback

Share repurchases are an option in contrast to dividends. At the point when a company repurchases its own shares, it decreases the quantity of shares held by the general population. The decrease of the float, or traded on open market shares, implies that regardless of whether benefits continue as before, the profit per share increment. Repurchasing shares when a company's share cost is underestimated benefits non-selling shareholders (often insiders) and concentrates an incentive from shareholders who sell.

Methods of Share Buyback

In the open market buying strategy for share buyback, the company purchases its shares in the market. This exchange happens through the company's intermediaries. This buyback program happens over an extensive stretch, as it is important to purchase a huge square of shares.

In the method involving a fixed price of the shares, The cost offered by the company is over the current market cost. Shareholders have the alternative to exchange the stock or hold the shares. Intrigued shareholders send no. of shares that they are happy to sell back to the company. On the off chance that a complete no. of shares surpasses the shares needed by the company, the shares are relatively repurchased. This strategy can be led rapidly, yet it very well may be more costly.

Share buyback can also be done by the company in question through direct trading. In this method, the target segment of shareholders is the one that has the largest number of shareholders with the biggest share chunk. Thus, these shareholders are those who hold the owner of the largest number of the company’s shares. Thus, the company can directly address these shareholders, without the need for any elaborate processes. 

Advantages of share buyback

Moreover, one of the prime advantages of a buyback is its flexibility in terms of the overall procedure and time factor involved. A buyback is a smooth process without much hassle and sets clear terms of a bargain for the company as well as for the shareholders. In the end, both the company and the shareholders are set to benefit from this.  This is in direct opposition with the mode of dividends wherein the payments need to be processed on a priority basis. Moreover, the dividend tax rate is more than the capital gain tax rate and the buyback falls under the terms of the latter. This means that from the taxation point of view, share buyback is much more advantageous than a dividend mode.

Disadvantages of stock purchase

Also, from the shareholders' point of view, giving up the occupied shares is akin to relinquishing a portion of the ownership of the company’s stock. Although this may or may not feasible from a company’s perspective, yet this can effectively decrease the profitability of the venture for shareholders, especially if the shares turn out to more lucrative than what was initially thought.

How does it affect shareholders

As stated above, a buyback can have mixed results for shareholders. This is because considering the situation wherein the share performance tumbles, then a buyback is bound to give profit to the shareholders. But in the event that the shares perform exceptionally well at the share market, it directly indicates that the initial estimation of the share’s potential or performance was far less valued. In such an event, the company may benefit, although a shareholder is set to lose out in a futuristic sense.  

How can investors apply for shares buyback

For applying for a buyback, the procedure is similar to that of the purchase. The investors simply need to log on to the demat account and check if there is any buyback under offer. In the event of any buyback offer, investors can directly apply for the same through the online portal.


It is important to note that just like an initial share purchase, a buyback is an investment decision that needs to be taken seriously and with due thought. If the buyback is done in an ill-informed way, then the possibilities of loss are multiplied. Therefore, the credible consultation of a firm like Tradebulls can make all the difference. In case you wish to know more, kindly click on the mentioned link: