Passive Income is considered to be a valuable asset to create long-term wealth. Most of us work day and night to satisfy our needs and build a lifestyle. But often, the hard-earned money doesn’t suffice to build long-lasting wealth. And then pitches in the Passive income to play and build your financial test match.
Passive income becomes the much-needed anchor to bridge the gap between your ambitions and your salary. Building sustainable sources of passive income is a need for everyone in uncertain times of the pandemic.
To build a passive income portfolio, one needs to put in at least one of the three things initially –
- Investment of MONEY
- Investment of TIME
- Investment of SKILL
With the above investment, there are tons of passive investing options which can reap your fortunes if you choose them wisely. In this article, we aim to dive deeper into our list of the 7 Best Sources to reap sustainable passive income.
7 Best Sources of Passive Income to Build your Fortune
1. Real Estate Crowdfunding
Real Estate Crowdfunding is one of the emerging ways of investing in real estate. In this, a group of investors is pooled in to invest their money for funding upcoming real estate projects. Real estate crowdfunding offers a completely passive way of investing in real estate without any actual ownership of property and the hassles of maintaining it.
In a real estate crowdfunding setup, a real estate developer initiates funding requests to a crowdfunding platform. The platform then advertises and raises awareness in the prospective investor market. The investments are pooled into a Special Purpose Vehicle and invested the same to finance the developer’s project after complete due diligence. The developer pays a fixed interest on the capital for a regular interval and repays the capital when the inventory is sold.
Thus, with just ‘Investment of Money’, people can create a passive source of revenue through indirect exposure to real estate. Assetmonk is a leading real estate crowdfunding platform in India with major market operations in Hyderabad, Bengaluru, and Chennai. They offer smart real estate investment options through Growth, Growth Plus, and Yield options with a maximum IRR of 21% p.a.
2. Exchange-Traded Mutual Funds
Exchange-Traded Mutual Funds are like any other Mutual Fund but it tracks its performance to an underlying index like Sensex and Nifty. These exchange-traded funds mimic the portfolio allocation of the index to achieve similar returns. The added advantage of ETFs is that they do not need active management of funds and thus the additional fees of fund managers are eliminated.
Moreover, ETFs are truly passive with only active ‘Investment of Money’. Thus, ETFs are amongst the trendiest passive income options suitable to anyone.
3. Real Estate Rental Property
Real Estate is a two-fold investment option. On one hand, it offers regular passive income cash flows in the form of lease rent, and at the same time appreciates over the long term. The rental yield prospects in Residential properties in India is 3 to 5 % p.a. on average. Commercial properties having high demand provide an average rental yield of 6 to 10% p.a. Thus, according to the initial investment capacity, one can choose between Commercial or Residential rental property.
Maintaining a rental property is sometimes a tough task and requires skill and time. Thus it makes Real Estate Rental Property an ‘Investment of Time, Money, and Skill’. However, one can do away with the maintenance job by outsourcing it to third-party property managers who look after the tenants and managing the property for a predetermined fee. This way, the investment would be truly passive with only ‘Investment of Money’.
4. Earn through Ad Income
Earning through Ad income is trending amongst most social media influencers. Social media platforms like Youtube, Instagram, Facebook, and so on have created a level playing ground for common people to showcase their talents and engage with a community. Through these media, they place small ads with the help of Google and can thus earn revenue on clicks and views from their channel.
If one is skilled at a particular thing, showcasing such talents through blogs and videos and earning passive income through it is a great idea for sustainable passive income. This requires ‘Investment of Time and Skill’.
5. Public Provident Fund
Provident Fund is a Government notified Investment option. Through provident funds, an investor makes yearly contributions to their PPF A/c at nationalized and some private authorized banks. On these contributions, the Government announces a fixed percentage of interest in the range of 6 to 7 percent per annum. The added benefit of PPF is the compounding effect which helps to passively multiply the funds for a tenure of 15 years.
People who cannot afford a huge investment of time, skill, or money; but can manage ‘Small Investment of Money’ can invest in PPFs and earn sustainable returns over the years. Moreover, taxability exemptions and deductions can also be availed for PPFs.
6. High Dividend Yield Stocks
Investing in the stock market is the most common way of earning passive income. Choosing high dividend yield stocks will create a good source of passive income along with capital appreciation. Right stock selection requires some knowledge of financial analysis. However, one can take advice from a well-known financial advisor and portfolio manager to make the investment completely passive.
Stock market investment requires ‘Investment of Money and/or Skill’. Moreover, an investor should also look for risk capacity and holding period to make optimum profits.
7. Passive Partner in Business
Investing in a partnership business and being a passive or sleeping partner is a great idea to earn passive profits. Most partnership businesses require initial capital investments and not many people have it. Thus, by filling in their needs, one can become a passive partner and earn regular passive cash flows from the business.
Before investing in a business, one must undertake complete due diligence and understand the market analysis and demand for the business. The business should possibly have a sustainable competitive advantage to reap profits for the long term. In such a source of passive income, one needs to make ‘Investment of Money’
The above 7 Passive Income Sources are a great starter to get into long-term wealth building. Here is a quick review of the 3 parameter analysis of the above-mentioned sources for a better understanding:
|Real Estate Crowdfunding||Low to High depending on investor’s preferences||15 to 21% Average Returns||Moderate Risk of Default in paying the interest.|
|Exchange-Traded Mutual Funds||Low to High depending on investor’s preferences||8 to 15% Average Returns depending on the market indices||Low to Moderate Risk asset. General risk of market conditions|
|Real Estate Rental Property||High Investment for purchase and maintenance of the property||The returns generally depend on the type of real estate property. Residential – 3 to 5% Commercial – 6 to 10%||Moderate risk exists of losing a tenant and other market factors|
|Ad Income||Low Initial Investment for Google and Youtube Ads||Depends on Click Through Rate and Pay Per Click||High Risk of Low Click Through Rate due to Low traffic.|
|Public Provident Fund||Low to Moderate Investment of Yearly Contributions||6 to 7% p.a. On compounding basis||Least Risk Investment Option due to Government notified scheme.|
|High Dividend Yield Stocks||Moderate to High Initial Investment to purchase the stock||High Percentage of Dividends on Face value||Moderate Risk of Low Profits sucking out Dividend Yield|
|Passive Partner in Business||High Initial Investment in Capital to fund the business.||Depends on the profitability of the business. No upper limit of returns.||High Risk of business not taking off or low demands.|
With the above table, investors can understand the brief idea about the best 7 passive income sources. To get started with any investment option, one should carry out their due diligence concerning factors like –
- Type of Investment
- Tenure of Investment
- Taxation on Returns
- Associated Risks
- Capacity of Returns
- Lock-in Period
- Liquidity of Asset
- Market Conditions related to Asset
Passive Income has become a must for every individual especially during such uncertain times of a pandemic. Our active sources of income may not always be fixed and thus, the creation of multiple passive income streams keeps us ahead in our financial game.
That’s Why passive income is advocated to build fortunes by stalwarts in the financial industry. The young and millennial generation too should focus on building a passive income portfolio that can sustain the ups and downs of the market and provide consistent returns.
Along with that, one thing to remember is to not follow any random advice and use only trusted sources to begin investing. The safety of the investment is of extreme importance and thus your passive investments should be well-thought of and planned.