Passive income is when you generate money by investing your time, efforts, and resources. The source of your passive income could be investment, properties, or a side hustle, but none of them is meant to disturb your active source of income.
Among all the sources of passive income, passive income investment is the best way to generate income without actively involving too much of your time and efforts. The biggest positive is that you do not need to work on a regular basis to earn returns from your passive income investments. There are numerous investment schemes that provide good returns on your money.
Some Of The Best Passive Income Investment Options Are:
Dividend stocks are a good way to generate an income stream. They are less volatile as compared to growth stocks and could be a part of your portfolio. Companies share their earnings with investors regularly in the form of dividend stocks. These earnings are shared on a quarterly, half-yearly, and annual basis.
Bonds are a way to lend money to companies and the government and collect interest on the bond value. In some ways, investing in bonds is preferable to purchasing company stock. Bonds are safer than stocks but also generate lower interest.
Once you invest in bonds, you will get regular returns on a quarterly or yearly basis. In addition, the principal will be returned at the end of the term.
Certificate of deposits are financial instruments governed by the RBI. Banks often issue CDs for you to invest a lump sum in a fixed deposit account for a fixed tenure, and the interest is higher than in a regular savings account. If you have money lying around in a savings account, you could invest in CDs. Certificate of deposits are issued in dematerialized format and the minimum deposit amount is Rs.5 lakh and in multiples of Rs.5 lakh thereafter.
Peer-to-peer lending though a bit riskier, is a good way to accelerate the growth of your passive income. This is not like traditional lending, where you apply for a loan from a bank or financial institution. Ruther, if you have money, you could directly lend it to the borrower after checking their risk profile. There are now numerous online portals that match lender and borrower profiles and assist them in participating in peer-to-peer lending.
Real estate investment trust allows you to invest in real estate ventures. It is the easiest way to invest in real estate without the burden of buying and renting properties. All you need to do is invest in REIT funds. You could take advice from experts about different real estate ventures and commercial projects. Profit is earned in the form of dividends generated from the sale of real estate assets.
Private equity is another way to invest your passive income; you fund a private business you believe in. You act as an investor to support a business and be part of the profit the business earns. Though there is no fixed estimate of how much you will make, if the business blooms, chances are your wealth will grow.
Mutual fund is a way to pool money and invest it in equities, bonds, money market instruments, and other securities. The returns gathered from these investments are distributed among investors. Mutual funds give you multiple options to invest in the capital market and earn from it. Fund managers choose different sectors to invest the pooled money in. Mutual funds are a good way to invest your passive income.
High-Interest Savings Account is another great way to save money and build wealth mainly because it does not have any risks and yet, you generate passive income. Yes, returns are lesser but if you have a zero balance account, you have easy access to all your money for emergencies without the risk of fines, penalties etc. that come with breaking FDs, mutual funds, etc.
Why do we need passive income?
The rising cost of goods and the volatile nature of the market are clear indicators that it is critical to seek out a passive income source in addition to your regular income in order to achieve financial freedom.
Depending on a single source is not viable, and if one income source is blocked, you must have an alternative source to keep the money flowing in.
Passive income investment is a way to open up new avenues of active income.