It is an event when the company purchases its shares from shareholders, usually at a premium to the market price. Companies go for buybacks to consolidate their stake in the enterprise and for greater control, to support the share price from declining, to improve earnings per share (as it reduces the number of outstanding shares in the market), and to build investor confidence in the promoters.

Before you participate in buyback opportunities, ascertain the reasons why a company is doing it. "We have seen IT companies like TCS and Wipro which have underperformed the indices over the last year doing buybacks," says Kamath.

The tax treatment in the case of buybacks through a stock exchange is same as during a usual sale: Short-term capital gains are subject to 15% tax, while long-term capital gains are tax-free

Impact A buyback may lead to a short-term spike in the share price.

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