A debenture that is changeable/ convertible to equity shares or in any other type of security either at the discretion of the issuer or the debenture holders. It is a type of long-term debt issued by a company that can be converted into equity shares after the passage of a specified period. Convertible debentures usually represent unsecured bonds or loans, often with no underlying collateral that might be used to back up the underlying debt.

These debentures are either entirely or partly convertible. The loan/ debt amount is converted into shares of the issuing company under the conditions set out in the debenture certificate (indenture). Partially convertible debentures can have part of its face value convertible into shares, the remainder being into cash.

A convertible debenture is a hybrid financial instrument that has both fixed income and equity characteristics. The instrument gives the holder the right/ option to convert into an  underlying equity instrument at a predetermined price. A holder receives a regular income stream through the coupon payments in addition to the ability to participate in capital appreciation through the potential ability to convert to equity.

Convertible debentures are usually subordinated to other debts of an issuer.