Companies always need financing for their projects and investments. For this purpose, some companies, especially big ones, create financial instruments like debentures. Debentures are debt instruments much like bonds and notes. There are two types of this: convertible and non-convertible.
Just from the name you can tell that convertible debentures are more attractive and appealing to investors because of the fact that it is a bond that can be changed to stock options. With this financial instrument, an investor can make profit in two ways: through regular payments of interest, and through the increasing bond prices brought about by an increase in the value of the stock. This option combines the best attributes of both stocks and bonds. On the other hand, non-convertible bonds are not convertible in any way, meaning, an investor cannot exchange the bond for equity shares of the liable company.
Investing in these has a number of advantages which makes it highly appealing and popular to stock buyers all over the globe. As mentioned earlier, these bonds follow market share prices. This means that if stock prices go up, so do the bond prices. These bonds only go up to about two-thirds as compared to stock prices but during price declines, the same thing holds true. While bond prices may go down, they will just be half of the decrease in stock prices.
One investing advantage of this is that the interest from the bond can be collected until such a time that stock prices reach the conversion ratio of the prices per share. These bonds are also a great way to protect yourself from market fluctuations while giving you the bonus of annual gains at the same time.
Convertible bonds also give you the opportunity to invest in technology stocks and receive income from them as well. While these types of stocks do not normally give dividends, this type of bond does so through yields. More and more small-capital and medium-capital companies, which hold great market potential, now offer these. And when you buy bonds from them, you will also profit from their growth. How? By simply converting these bonds to stock shares that have a higher value.
Investors continue to love convertible debentures because they have a good return on investment and they follow share price movement which can provide you with a much bigger return. Non-convertible debentures do not offer this feature.
Even if you don't convert the bond into stocks, you still get a definite yield from the bonds, which are much higher than other investment instruments like bank deposits. You also get back your principal investment. These features make these bonds a solid investment option for investors. They are also popular with those who don't like volatility in their investments. These bonds offer a good and consistent return and an option to participate in higher return with its conversion feature.
The important thing to remember before investing in these bonds is to study them and talk them through with your financial advisor. Also, you should learn a lot about stocks and bonds first so that you can properly deal with them.
Just from the name you can tell that convertible debentures are more attractive and appealing to investors because of the fact that it is a bond that can be changed to stock options. With this financial instrument, an investor can make profit in two ways: through regular payments of interest, and through the increasing bond prices brought about by an increase in the value of the stock. This option combines the best attributes of both stocks and bonds. On the other hand, non-convertible bonds are not convertible in any way, meaning, an investor cannot exchange the bond for equity shares of the liable company.
Investing in these has a number of advantages which makes it highly appealing and popular to stock buyers all over the globe. As mentioned earlier, these bonds follow market share prices. This means that if stock prices go up, so do the bond prices. These bonds only go up to about two-thirds as compared to stock prices but during price declines, the same thing holds true. While bond prices may go down, they will just be half of the decrease in stock prices.
One investing advantage of this is that the interest from the bond can be collected until such a time that stock prices reach the conversion ratio of the prices per share. These bonds are also a great way to protect yourself from market fluctuations while giving you the bonus of annual gains at the same time.
Convertible bonds also give you the opportunity to invest in technology stocks and receive income from them as well. While these types of stocks do not normally give dividends, this type of bond does so through yields. More and more small-capital and medium-capital companies, which hold great market potential, now offer these. And when you buy bonds from them, you will also profit from their growth. How? By simply converting these bonds to stock shares that have a higher value.
Investors continue to love convertible debentures because they have a good return on investment and they follow share price movement which can provide you with a much bigger return. Non-convertible debentures do not offer this feature.
Even if you don't convert the bond into stocks, you still get a definite yield from the bonds, which are much higher than other investment instruments like bank deposits. You also get back your principal investment. These features make these bonds a solid investment option for investors. They are also popular with those who don't like volatility in their investments. These bonds offer a good and consistent return and an option to participate in higher return with its conversion feature.
The important thing to remember before investing in these bonds is to study them and talk them through with your financial advisor. Also, you should learn a lot about stocks and bonds first so that you can properly deal with them.
About the Author:
The author of this story has distinguished a well respected investment relations vet by the name of Josh Yudell. Josh Yudell is also the Managing Director of a private equity fund and is credited with the creation and popularization of a funding vehicle known as a PSSO (Private Secondary Shareholder Offering).
