Sun Shines Bright on Convertible Funds

January's stock market setback and ongoing interest rate jitters have many investors wondering where to put their money. One oft-overlooked place is convertible bond funds.

"Convertibles are a nice place to be anytime there is uncertainty in the market," says Alan Muschott, portfolio manager of the (FISCX Quote)Franklin Convertible Securities fund. "The advantage of convertibles is that you get equity participation on the upside with the security of downside protection."

Convertible bonds, or converts, are part bond and part stock. They are typically three-year corporate bonds that pay interest but give you the option to take your principal in cash or a set number of shares of the issuer's stock at maturity (thus "converting" the bond to stock). The terms of the deal -- how much interest you earn, when the bond matures and how many shares of stock you can get at maturity -- are set when the company issues the bond. ...