What Are Hybrid Investments?

Hybrid investments are also called debt-equity products.

Hybrid investments, also known as mixed or debt-equity products, allow traders and investment professionals to diversify their portfolio assets. Hybrid products include preferred shares and short- or long-term convertible bonds.

Definition

A hybrid investment is an asset that combines equity and debt features, allowing companies to protect against financial risks in securities transactions. A firm may issue a hybrid product if senior management believes that economic conditions are not favorable for the sale of traditional stock or bond products.

Significance

Hybrid investments are key in modern economic transactions. Investors who buy these products typically hope to receive periodic fixed-interest payments and make profits when share prices rise on financial markets.

Types

Preferred stocks and convertible bonds are the most frequent types of hybrid investments. A buyer of preferred stocks, also referred to as a preferred stockholder, receives dividend payments on a regular basis. The stockholder also gains when share values rise on securities exchanges. A convertible bondholder receives periodic interest payments. The bondholder also can exchange bonds for a specified number of equity shares, in accordance with the convertible bond covenant.

References

• Investopedia: Hybrid Security
• Investopedia: Convertible Bonds: An Introduction
• Investopedia: A Primer on Preferred Stocks