| Definition |
Bonds that can be converted into a predetermined number of equity shares of the issuing company. |
Bonds that cannot be converted into equity; they remain debt instruments until maturity. |
| Conversion Feature |
Yes, conversion to equity is allowed under specific terms. |
No such conversion option available. |
| Return Type |
Fixed interest plus potential equity upside after conversion. |
Fixed interest only; no equity participation. |
| Interest Rate (Coupon) |
Generally lower than non-convertible bonds due to equity option. |
Higher to compensate for lack of conversion feature. |
| Risk Level |
Moderate—includes equity risk post-conversion. |
Lower risk—pure fixed income security. |
| Capital Appreciation |
Possible through equity conversion during stock price growth. |
Not possible; limited to interest income. |
| Investor Type |
Investors seeking both safety and equity upside. |
Conservative investors looking for steady income. |
| Ownership Post Conversion |
Bondholder becomes a shareholder. |
Bondholder remains a lender, never becomes an owner. |
| Voting Rights |
Yes, after conversion to equity. |
No, as they never become shareholders. |
| Market Behavior |
Prices influenced by equity price movements. |
Prices influenced mainly by interest rates and credit rating. |
| Tax Treatment |
Interest taxed as income; capital gains tax applies post-conversion. |
Interest taxed as income; no capital gains unless sold early. |
| Redemption |
May not be redeemed if converted to equity. |
Repaid in full at maturity with interest. |
| Liquidity |
Moderate to high, depending on conversion terms and company stock performance. |
Moderate, based on issuer credit rating and market demand. |
| Corporate Benefit |
Reduces immediate cash outflow; can dilute equity base. |
No equity dilution; full debt repayment needed. |
| Examples |
Convertible debentures issued by tech startups or growing companies. |
Traditional bonds issued by government or corporates like NCDs. |
| Suitability in Rising Market |
More attractive—conversion can lead to higher gains. |
Less attractive—returns stay fixed regardless of market rally. |
| Suitability in Falling Market |
Less attractive—conversion value may drop. |
More stable due to fixed returns. |
Convertible Bonds vs Non-Convertible Bonds