Understanding Share Buyback Offers: How to Tender Your Shares
Share buybacks approved by companies offer a unique opportunity for investors to gain value on their invested amount in the company's scrips. Instead of distributing dividends, companies use buyback schemes to return excess surplus or cash reserves to their shareholders. Such buybacks are particularly attractive when the company has no immediate expansion plans and chooses to return capital to shareholders in a preferred manner. Additionally, if you track the financial markets, you might be tempted to participate in two upcoming buyback offers to earn some additional income.
Rules for Share Buyback
Rules for share buyback are regulated by the capital market authorities, mandating a reserved portion of the shares for retail investors. Specifically, for shares valued up to Rs. 2 lakhs, there is an allocation of 15% to the retail class. Here's a detailed guide on how to tender your shares during a buyback offer:
Step-by-Step Process for Tendering Shares
Portal Log-in: Begin by logging into your demat account just as you would for regular stock trading. If the company has launched a buyback offer, you will see it displayed as Offer for Sale or a distinct Buyback option
Price and Validity: Check the price fixed for the buyback to understand the return it will fetch you. Also, verify the validity period of the offer, as shares will be repurchased by the company only during this period.
Record Date: Be aware of the record date for the buyback. You must hold shares in the company before this date to be eligible. If you miss the record date, you won't be able to participate in the buyback offer.
Tendering Form: Look for the tender form provided by the company. Enter the quantity of shares you wish to tender. There might be an acceptance ratio specified, which determines how many shares the company will actually repurchase based on the percentage of total bids.
Tender Offer Period: During the tendering period, which is typically a 10-day window, trading of the company's shares on the stock exchange is suspended. During this period, you can only sell your shares, not buy them. You will see a sell option for the company on the stock exchange platforms.
Explanation of Key Terms
Tendering Period: This is the 10-day window during which shares are repurchased by the company. It is known as the tendering period because this is the time during which shareholders tender their shares for repurchase.
Sell Option: During the tendering period, the stock exchange platforms will only display a sell option for the company's shares. This is because the company is giving shareholders a chance to sell their shares at a premium.
Why Participate in Share Buyback Offers?
Participating in share buyback offers can be an attractive option for several reasons:
Diversification: It allows you to diversify your investment portfolio, reducing reliance on one stock.
Capital Reinvestment: By buying back shares, companies can reinvest capital back into the business or distribute it to shareholders, which can be more tax-efficient than dividends.
Understanding these concepts and following the steps outlined above will help you make informed decisions about participating in share buyback offers, maximizing your returns and managing your investment portfolio effectively.