Different buyback methods: Comparison

Companies may decide to repurchase their own shares when they have surplus funds and limited requirements for expansion, acquisitions, or fresh investments. A share buyback reduces the number of publicly available shares and may improve financial indicators such as earnings per share and return on equity.  

Different methods of buyback of shares are used based on the company’s financial position, shareholder structure, and regulatory framework. In India, share buybacks are conducted through defined routes and must comply with regulations issued by the Securities and Exchange Board of India. 

Key Takeaways 

What is Buyback? 

A company may plan to buy some proportion of its shares from existing shareholders when it has surplus cash and limited attractive investment opportunities. This process of repurchasing its own shares is known as a share buyback. 

It is a corporate action wherein a company announces a buyback to acquire shares at a price which may be at a premium to or based on the current market price from the existing shareholders in a given timeframe. There are several reasons why a company may announce its buyback. A few of them are mentioned below: 

Types of Buyback of Shares

The types of buyback of shares mainly determine how the company acquires shares and how shareholders receive the payment. In India, companies carry out share buybacks primarily through the following methods:  

Under the tender offer route, the company invites shareholders to tender their shares at a specified price or within a price band through the reverse book-building process, within a defined period. 

The offered price is generally higher than the prevailing market price. If the total quantity tendered exceeds the buyback size, shares are accepted on a proportionate basis. A minimum 15% of the buyback offer is reserved for small shareholders, those whose total holding in the company is valued at up to ₹2 lakh as on the record date. 

Earlier, listed companies could repurchase shares from the open market through the stock exchange or the book‑building route. As per SEBI’s phased‑out framework, the stock‑exchange purchase route was discontinued from April 1, 2025, and most buybacks since then have been executed via the tender‑offer route. 

However, SEBI's May 2026 consultation paper proposes a maximum completion period of 66 working days, with a requirement that at least 40% of the earmarked buyback amount be utilised within the first half of the offer period. 

Note: As of May 2026, the proposals are under public consultation and have not been formally notified. 

Under the book‑building route, the company announces a price band and invites shareholders to place sell orders within that band. The final buyback price is discovered based on the bids received, and only listed companies can use this method. 

This route is typically executed through a reverse book‑building platform on the exchange, with a designated Book‑Running Lead Manager (BRLM) handling the process. 

Note: The open market book-building route was discontinued effective April 1, 2025 along with the stock exchange route, and is not currently available for new buyback announcements. The description above is for historical reference and regulatory context only 

Also Read About: What Happens When a Company Buys Back Stocks? 

Reasons for a Stock Buyback 

Companies may repurchase their shares for financial, strategic, or operational reasons. The decision usually depends on the company’s cash position, long-term plans, and capital management approach. Different modes of buyback are used to achieve specific objectives while maintaining compliance with applicable regulations. A buyback may also influence financial ratios, ownership structure, and market perception of the company. 

A company may announce a buyback when it believes its shares are trading below their actual value. Repurchasing shares can reflect management’s confidence in the company’s future performance and financial stability. 

Buybacks allow companies to return surplus funds to shareholders without committing to regular dividend payouts. This gives management greater flexibility regarding the timing and amount of capital distribution. 

Under the Finance Act, 2026, buyback proceeds are taxed as capital gains in the hands of shareholders effective April 1, 2026, replacing the earlier regime where companies paid a buyback tax.  

For listed shares, gains are taxed at 12.5% (with an exemption of up to ₹1.25 lakh) for long-term holdings and 20% for short-term holdings. 

Companies that issue employee stock options may use buybacks to offset the increase in outstanding shares after those options are exercised. This helps maintain balance in the overall shareholding structure. 

A buyback can reduce the number of shares available in the market. This may make it more difficult for an external entity to acquire a controlling stake in the company through open market purchases. 

Also Read About: What is Share Buyback? 

Tender Offer vs Open Market Offer

In a tender offer, the company announces a fixed price or price band, and shareholders voluntarily tender their shares within the offer period. If the offer is oversubscribed, acceptance is usually on a proportionate basis.  

In an open market buyback, the company buys shares through the stock exchange at market prices over a period of time, but this route has been phased out under the current SEBI framework for fresh buybacks and should be mentioned only as historical context or regulatory background. 

For investor-facing content, it is better to state that tender offers are now the primary active method for buybacks in India, while the open market route is no longer available for new buyback announcements under the latest rules. 

Also Read About: How To Apply Buyback of Shares? 

Conclusion

Buyback of shares is a structured process used by companies to manage capital, optimise financial ratios, and adjust their capital structure. The different modes of buyback offer flexibility in execution, allowing companies to choose between market-based purchases, fixed-price offers, auction-based pricing, or negotiated transactions. Each approach serves a specific purpose depending on liquidity, shareholder base, and financial objectives. A well-planned buyback can support efficient capital allocation while maintaining regulatory compliance and market discipline. 

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