Definition
Convertible debentures are a type of debt instrument that can be converted into shares of the company after a certain period. They pay interest like regular debentures and also give investors the option to become shareholders later.
Example
You invest Rs 10,000 in a convertible debenture. After a few years, the company gives you the option to convert it into shares. If the company’s share price has increased, you may benefit by converting it into equity.
Caution
Convertible debentures usually offer lower interest than non-convertible ones because of the conversion option. If the company’s share price does not perform well, the conversion may not be beneficial.