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When Will I Receive An Update on The Status of My Buyback

Companies go through buyback for various reasons, which include company consolidation, equity value increase and looking financially stable. Share buyback can at times have a positive effect on the overall economy. Today, we will discuss share buyback and when you receive the status and funds update.

What is share buyback?

Share buyback or share repurchase is a corporate action under which the company decides to buy back its shares from its existing shareholders. Through this buyback, the company is trying to gain back the part of ownership that was distributed to private and public investors.

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Why does a company buy back shares?

There could be multiple reasons, such as 

  1. Not enough projects to invest in:
    Sometimes companies earn good projects and have cash liquidity as well. However, they might not have a great line-up of subsequent projects to invest in the future. 
  2. To consolidate its hold: At times, companies start losing their power when the shareholders of the company are many. The company finds it difficult to take any consolidated decision. This is when voting rights step in. 
    To resolve these issues, the company, at times, comes up with a resolution to consolidate its hold over the company through the process of share buyback.
  3. To convey that the stock is undervalued: Another important reason for the buyback is when the company’s stock prices may have gone down. By going for a buyback, the company signals that the stock is undervalued. This may not have an immediate effect on share prices, but the long-term image of the company improves in the minds of shareholders and investors.
  4. Return cash to the shareholders of the company: Companies at times find that the best way to return cash to shareholders is buyback. This has been practiced a lot in foreign countries as well, but it is still not a trend in India yet.
  5. Tax benefits:
    The share buyback is a more tax-efficient process as compared to paying dividends. Dividends have to go through tax deductions at three different levels, whereas buybacks have to bear only 10% of long-term capital gain tax.

What are the methods of share buybacks?

This buyback is generally done at a price higher than the market price. Share buyback is done in two ways i.e., tender offer and open market offer.

Tender Offer

Through the tender offer, a company makes an offer to repurchase its shares at a particular price from its existing shareholders. This is the price at which shareholders can sell their shares. The shareholders will receive the sales proceeds of shares in their primary bank account.

Open Market Offer:

Under an open market offer, a company decides to buy back the shares from its shareholders through the stock exchanges. The buyback offer contains details about the buyback period. This period can last for months and there may be fluctuations in the price of shares due to the buying activity. The amount received from the sale of shares is credited to the trading account of the shareholder.

When will you get an update on the status of the buyback?

If you are a shareholder of a company, you can participate in the buyback offer of the company. This may be declared through a tender offer or open market offer. But to be eligible for buyback, you must hold the shares of the company before the record date announced by the company.

The company will approve the buyback requests in proportion. The shares that are not approved for buyback will be unblocked from the demat account. The amount of shares bought back by the company will be credited to the registered bank account of the shareholder.

It takes time for funds to get credited after the buyback. In general, it will take 7-12 working days for the investors who participated in the buyback to receive the money after the close of the buyback window.

Final thoughts

The company indulges in share buyback for a variety of reasons. The share buyback is a long process. It takes time for you to get funds from the buyback credited to your bank account. Do remember that to be eligible for share buyback, you must have shares in your demat account before the record date.

 

Related Articles: What are the nuances of the Infosys buyback offer? | Understand what are the Tax Implications on buyback of shares? | Is It Possible to cancel the Buyback Order

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