IPO Basics and Ways to Invest Online

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Online investment has become increasingly accessible with the advent of technology. Before understanding the basics of investing let’s first learn about asset classes an investor can trade into. Anyone who wants to diversify their portfolio can invest online, via a stock market app, in assets such as stocks, bonds, ETFs, and more. But today we are here to discuss an IPO and ways to invest in it online.

What is an IPO

IPO or Initial Public offering is a process where a private company’s shares are made available in the public market. It helps individuals to purchase these shares for the first time. The process helps companies to get equity capital from the general public.

The shift from a private to a public company offers private investors the opportunity to capitalise on their investments with a share premium. It opens doors for public investors to engage in the investment opportunity.

Traders can invest in IPOs through online stock market apps, which offer several benefits, such as convenience, cost-effectiveness, elimination of middlemen, free brokerage, and more.

Process in an IPO

IPO is a big step for a company as it allows it to raise large capital with an expectation to grow and expand. Below is a list of processes involved in an IPO:

Preparation: The company initially prepares for an IPO by working with investment banks to determine its value and prepare financial documents.

Underwriter. The company selects its underwriters and formally agrees to underwrite the terms through an underwriting agreement.

Filing: The company submits documents to the SEC (Securities and Exchange Commission), detailing its business, financials, and the proposed terms of the IPO.

Roadshow: The company and its underwriters promote the IPO to potential investors, explaining its financial prospects.

Price Setting: Based on the investor’s interest, the underwriters set the final price of the shares.

Allocation: Shares are allocated to investors, some reserved for institutional investors and some for retail investors.

Trading: On IPO day, the shares start trading on the stock exchange, and investors are allowed to sell securities freely.

Post-IPO: The company is now publicly trading, and its shares continue to trade on the stock exchange, with prices determined by supply and demand.

Advantages and Disadvantages of an IPO

Below is a brief advantages and disadvantages of an IPO; read carefully before making any investment:


●      Raise Capital

IPO helps companies to raise substantial amounts of capital to fund general corporate operations, growth opportunities, R&D, marketing, and capital expenditures.

●      Higher Share Valuation

Shares trading on a public stock exchange have higher liquidity than privately held companies. Company market capitalisation valuation and the stock price are higher.

●      Reducing Corporate Debt

Public companies may reduce debt through the IPO or subsequent share offerings to reduce interest costs and improve cash flow and their debt-to-equity ratio.


●      Risk of Incomplete IPO

If the market is not right for an IPO, the time and money spent on audits and services from experts like CPAs and lawyers might not be worth it if the company doesn’t go public and get the money it needs.

●      Higher Weighted Average Cost of Capital

Using the capital asset pricing model (CAPM) method, the cost of receiving money from selling shares might be more than the cost of borrowing money. When a company gets capital from selling shares to the public, its cost increases. However, the benefit of raising a large capital through an IPO can help balance out this concern.

●      Public Information Scrutiny

Private companies keep their financial information confidential. However, while conducting an IPO, companies will have to share this information with the public, which means competitors can see it. If sharing information openly concerns the company, it might choose not to have an IPO.

Ways to Invest Online

Many free platforms on the web can help you invest online. Traders can check the latest stock quotes on IIFL Market apps. This site provides fundamental data like market capitalisation, price-to-earnings ratio, and company financials. Below are four simple steps that can help you invest online with ease:

Step 1: Choose an online broker.

Step 2: Open a demat and trading account

Step 3: Log in to the demat and trading account and add money

Step 4: View stocks and start trading


Online trading helps investors easily access and trade in the financial markets. The IIFL Markets app can be a good choice if you seek a reliable stock trading app. It is important to know what is needed out of your online trading platform. Online investment allows you to make financial decisions and work with a registered professional advisor.