How does buyback of shares work?

A buyback of shares is an event where the company purchases its own stock. The buyback of shares in India is generally done using the below two modes:

1. Tender Offer
2. Open Market Offer through Stock Exchange mechanism.

In a tender offer, the company offers to buy the stock at a fixed price from the existing shareholders that are on the company's records as of the record date. The tender offer involves a buyback ratio in which the company can buy back the stock from the existing shareholders. Even the physical shareholders can participate in the Tender offer by tendering their physical share certificates. A tender offer is generally open for ten working days.

In an open offer, there is no concept of record date or buyback ratio. Any shareholder holding the company shares during the buyback period can participate in the buyback. Generally, only the shareholders holdings the stock in Demat form are allowed to participate in the open offer barring a few exceptions. The open offer buyback remains open for about six months.