What Is A Share Buyback?

This is a series of explainers to educate and inform new investors. In association with Dun & Bradstreet India as knowledge partner.

Share Buyback: Definition, Meaning & Basics

Shares issued by a company are bought and sold either on the stock market or over the counter. A company, at certain times, can also decide to purchase its own shares, via a process called share buyback. Once bought back the shares are to be extinguished and hence lead to a reduction in the share capital or equity capital of the company.

In a share buyback, a company announces a price at which it is ready to buy shares from shareholders within a given time frame. Typically, companies with high cash reserves use the buyback route to reduce the number of shares in the market. Fewer shares can help return ratios and a reduced supply of shares can boost stock prices.

A company can opt for a share buyback multiple times to increase proportionate holding of promoters.

In India, a company can undertake a share buyback by using its free reserves, securities premium account or proceeds of an issue of shares or other specified securities. After a company has completed a share buyback, it cannot go for a fresh issue of the same kind of shares within a limited time frame.

SEBI governs the process of buybacks through Securities and Exchange Board of India (Buy-back of Securities) Regulations.

Visit the Financial Terms section for more.