IN RECENT months, Hong Kong has been laden with a new term: the convertible bond. Sino Land recently used the vehicle to raise capital and it is expected that the number of Asian companies issuing the bond will, to some extent, mirror the growth of markets in both Europe and the United States. But small investors need not be too concerned. Unlike Britain and Europe where the convertible bond market began in its infancy supported by retail investors, the Asian market is expected to be reared predominantly by institutions. According to observers, the sheer size of the required investment renders convertible bonds impractical for most small investors. ''There is nothing to stop convertibles selling directly to retail investors,'' said Richard Farrell, director at bond specialists Guinness Flight. ''But their large size has meant increasingly over the years [in the US and Europe] that they are more and more monopolised by institutions.'' For this reason, most Hong Kong retail investors may never directly own the bond, but a company in which they have invested may issue them in the future. Convertible bonds provide investors with a fixed interest investment, as a bond would. But due to their convertibility, they can be turned in for company shares at agreed terms between specified dates in the future. In other words, they are like a conventional bond with a share option attached. Institutional investors will buy, for example, $5,000 worth of bonds. These will give them the right to buy 250 shares on interest payment dates from the present until 1995, when the bond is redeemed. Meanwhile it also will pay interest and trade at a certain price as well. But whether the investor uses the convertible bond as a bond or share, depends on whether the bond can be converted into shares on favourable terms. But the important point for retail investors is that if the company in which they have invested issues a convertible bond, the company is seeking capital through an increased pool of investors. Companies are taking this route because a bond provides an alternative means to raise money. While the bond allows a company to draw on greater or as yet untapped resources in the corporate sector, it can lead to a dilution of shareholders' interests. In addition, when the conversion date approaches, the prospect of a large amount of stock becoming available in the market can affect share prices.