Convertible bonds provide an investor fixed income and equity features. Let explore the primary types of bonds available:
• Regular convertible bonds: This bond, often issued publicly, this provides investor with a fixed maturity date and conversion price. The issuer pays periodic interest until the maturity date, according to maturity date the issuer can convert the bond into equity shares at a predetermined price or redeem them from the face value.
• Mandatory Convertible bonds: unlike the regular bonds this required investors to convert the bonds into equity share at maturity. While they also offer periodic interest, the obligatory conversion often results in a higher interest rate.
• Reduced downside risk: As convertible bond is hybrid security; they offer reduced downside risk compared to common stocks. If the stock price falls, the price of bond remains the same because it is also fixed income security.