The concept of passive income has gained significant traction of late. While earlier the options were limited, the evolution of various online platforms has given Indians the opportunity to augment their primary income.
Additionally, a pandemic like Covid-19 has accentuated the need to have a passive income. Let’s dig deep into the concept of passive income, and how you you generate one.
What is Passive Income?
Passive income refers to income that does not require too much effort in terms of money, time, and resources. It does not warrant active participation, and you need not devote fixed dedicated hours to build a passive income. Unlike regular income, passive incomes require little maintenance.
Passive income helps you earn a little extra. Every penny earned matters, and you can deploy the funds to build an emergency fund, start a systematic investment plan in mutual funds, etc.
Passive Income Ideas
1. Giving Property on Rent
This is perhaps one of the most sought-after passive income sources, especially for those who own multiple properties. For instance, if you own two houses, you can put the unoccupied one on rent and earn. Your rental income can be substantial if you own a property in a prime location with good infrastructure and connectivity.
If you put a commercial property on rent, it can fetch you a hefty sum of money as rent. Hence, before you buy a property, look at the rental aspect should you require it in the future. To earn a decent amount of rent, maintain the property well, and carry out the needed repairs on time.
Utilize real estate portals to list your property for rent. You can give ads in local newspapers to attract potential tenants. The rent you earn is taxed under Section 24 of the Income Tax Act.
2. Non-cumulative Fixed Deposits
Non-cumulative fixed deposits can serve as a potent source of passive income. In such deposits, the financial institution, bank, or NBFC does not withhold the interest but pays it regularly. The interest paid is either monthly or quarterly. In a few cases, it is semi-annually.
Unlike a cumulative fixed deposit, where you do not earn anything during the FD tenure, the case is different for a non-cumulative deposit. However, note that the interest in a non-cumulative deposit is slightly less than a cumulative one. Additionally, there is no option to reinvest in a non-cumulative deposit.
Investing in such a deposit is simple and easy. Walk into the bank’s branch with which you have an account, fill up the deposit form and you are done. You can also invest in a non-cumulative deposit with internet banking. On most occasions, you will get the deposit certificate on the same day.
3. Dividend Options in Mutual Funds
Mutual funds need no introduction. They have evolved as a popular investment tool for many to build funds for their desired life goals. The mutual fund universe is large and offers different types of funds. The dividend option in mutual funds can be a source of good passive income.
In a dividend plan, the profits made are distributed among investors. They are not invested in the scheme. You get the dividends on a quarterly, semi-annually or half-yearly basis. Note that the dividend declared gets reduced from the fund’s NAV. If the fund’s NAV is INR 100 and the fund house declares a dividend of INR 20, the fund’s NAV comes down to INR 80.
In addition, a dividend is declared only when the fund makes a profit. The amount is not guaranteed. If you are seeking a regular income stream from your mutual fund investment, you can go for the dividend option. Note that the dividend you receive is added to your income and taxed as per the applicable tax rates.
4. Saving Account Offering a High-Interest Rate
While interest rates on bank savings accounts have come down, some banks offer a higher interest rate. Additionally, some banks credit the interest on the money every month instead of every quarter. These high-interest savings accounts can serve as a good source of passive income.
If you have low-risk tolerance and want assured income, you can invest in a high yielding savings account. However, do your due diligence before investing. Also, note that interest income above INR 10,000 in a financial year is added to your income and taxed as per the applicable tax rates.
5. Peer-to-Peer Lending
If you have money to lend, getting yourself listed on peer-to-peer (P2P) lending platforms can help build a prudent source of passive income. P2P lending platforms act as intermediaries between borrowers and lenders. You are connected with the potential borrower whose evaluation is done based on their credit score.
You can decide the interest rate that you want to charge for lending. Once the formalities are done, you credit the money to the borrower’s account and upon EMI payment, you earn the interest. P2P platforms must have an NBFC P2P license to operate and are under the purview of RBI regulations.
Most P2P platforms also assist you in recovery in the event of non-payment. However, to avoid non-repayments opt for listing yourself on P2P platforms with a solid risk assessment mechanism.
6. Freelancing in Various Domains
You can freelance to earn some extra bucks. For example, if you are good at writing, you can try your hands at content writing. Many companies and platforms hire freelance writers for their projects. Similarly, if you are good at marketing, you can try digital marketing.
If you are someone with many followers on social media, you can become an influencer and earn a handsome amount. The rise of the gig economy has fuelled in the past few years means you can turn your passion into income. All you need to do is lookout for opportunities in your domain and lap them instantly.
Start with one idea in the beginning and see how it works. If it works well for you, you can branch out and try out different ideas. Since a passive income does not require much effort, it is advisable to actively scout for them and give it a try.