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What is a convertible issue?

Convertible issue

It is an issue of corporate bonds that can be converted into the shares of the company that issued them. 'Convertibles' are a popular asset class but retail investors would be urged to take financial advice before buying them.

Where have you heard about convertible issues?

Your financial adviser may have suggested you put some money into a convertible issue. Financial media from time to time will ponder the attractiveness or otherwise of a new issue of convertible bonds.

What you need to know about convertible issues.

Convertible issues offer investors a hybrid security - a bond that can be converted into a set amount of equity in the issuing company.

Sometimes there will be a set date or dates for conversion, with other bonds it may be open season all the time. Some bonds can be converted only at maturity as an alternative to receiving back the original value of the bond. In all cases, the bond will pay a dividend in the normal way up to the moment of conversion, at which point the investor will be holding a share.

Conversion is attractive if the shares are riding high, but not if the opposite is the case.

Find out more about convertible issues.

Convertible issues make up a specialised aspect of the world of bonds. Learn more about bonds by seeing our definition.

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