What is a key feature of convertible bonds?

Convertible bonds are distinguished by the unique feature that they can be converted into a predetermined number of shares of the issuing company’s stock. This conversion option provides bondholders the potential to benefit from an appreciation in the company’s stock price while still enjoying the fixed income benefits of a bond.

This characteristic makes convertible bonds an attractive investment for those who are looking for a balance between security and growth. Investors have the opportunity to convert their bonds into equity, allowing them to participate in the company's growth, which is especially valuable if the company's stock performs well. The conversion terms, including the conversion ratio and price, are typically outlined at the time the bond is issued, giving investors clarity on how and when they can make the conversion.

The presence of this feature is what ultimately differentiates convertible bonds from other types of debt instruments, enhancing their appeal to hybrid investors who seek both income and the potential for equity-like returns.