Fully Convertible Debenture (FCD) is a type of debt instrument that can be entirely converted into equity shares of the issuing company after a specified period. Unlike traditional debentures, which are purely debt-based and repaid in cash at maturity, FCDs give investors the right to become shareholders, effectively turning debt into ownership. This hybrid feature makes FCDs an attractive investment option that combines the benefits of fixed income and potential capital appreciation.

When a company issues Fully Convertible Debentures, it agrees to convert the entire face value of the debenture into a predetermined number of equity shares, either automatically or at the investorís option, after a specific time frame. The terms of conversion ó such as the conversion ratio and conversion price ó are usually defined at the time of issuance. Until conversion, investors receive a fixed rate of interest, providing stable income.

From a companyís perspective, issuing FCDs helps raise capital without immediate equity dilution. It allows companies to defer the impact on ownership structure while still obtaining necessary funds for expansion, debt restructuring, or working capital needs. Once converted, however, the companyís equity base expands, which can dilute the earnings per share (EPS).

For investors, FCDs offer the dual advantage of regular interest income in the short term and the potential for long-term capital gains after conversion. However, they also carry risks, such as fluctuations in the companyís share price ó if the stock performs poorly, the post-conversion value may decline.

In India, the issuance and conversion of Fully Convertible Debentures are regulated by the Securities and Exchange Board of India (SEBI) and must comply with applicable guidelines under the Companies Act. These regulations ensure transparency and protect investor interests during the conversion process.

In summary, FCDs serve as an innovative financing instrument that bridges debt and equity, offering companies flexible fundraising options while giving investors a balance of income stability and ownership potential.