Apart from pure non-convertible debentures (NCDs), debentures can also be converted into equity shares at the option of the debenture-holders. The conversion ratio and the period during which conversion can be affected are specified at the time of the issue of the debenture itself. The convertible debentures may be fully convertible (FCDs) or partly convertible , (PCDs). The FCDs carry interest rates lower than the normal rate on NCDs; they may even have a zero rate of interest. The PCDs have two parts: (a) convertible part (b) non-convertible part.
Typically, the convertible portion is converted into equity share at a specified premium after a specified date from the date of allotment, while the non-convertible portion is payable/ redeemable in specified equal installments on the expiry of specified years from the date of allotment.