Definition of Convertible Bonds

Convertible bonds are hybrid instruments that have features of both debt and equity. Basically, it is a debt instrument like all other bonds but it has a built-in option that the holder can either redeem it to get the principal amount back or have the payment re-invested as equity.


At the time a bond is issued the conversion percentage or amount of shares that will be allotted at the time of conversion are stated on the face of the bond. The convertible bonds’ prices may be different as it bears the conversion option. The bonds can be converted into shares before or at the time of maturity depending on the term and conditions.

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