Passive income is the ‘money you make even when you sleep.’ Though these earnings are not dependent on traditional 9-to-5 jobs, they do help you have financial security. Moreover, you don’t have to be actively involved in making an income via these sources. Check out these 8 best passive income ideas that could potentially help you secure your future.
What is Passive Income?
Passive income is income that can be maintained with minimal effort. It can come from a rental property, investments, or a business in which you have no direct participation. In contrast to traditional 9-to-5 jobs and other avenues, you don’t have to exchange your time for money. Instead, you’re purchasing an asset that you can use regardless of where you are to sell and make money off of.
However, plenty of passive income ideas are not as passive as people would like to believe. These ideas include writing gigs, starting an online business, running an affiliate marketing business program and more. You would have to work without getting paid directly, and you should only expect it to pay off for months or years afterwards.
8 Best Passive Income Ideas
Here are some ways you can employ to generate passive income:
1.High-yielding Savings Account
Getting a high-yielding savings account is one of the most straightforward ways of earning passive income. You can put your money in a money market or a high-yielding savings account and earn interest on your deposited money. Though it’s a direct approach to making passive income, it binds your funds to the savings account and offers decent returns compared to other passive income investments.
2. Dividend-yield Stocks
When you invest in dividend-yielding stocks, you earn dividends depending on the number of shares you hold. If you are familiar with the stock market, you can also consider dividend exchange-traded funds (ETFs), which combine the benefits of an ETF with the passive income offered by dividend stocks.
You can rely on various online brokerage platforms to buy stocks and mutual funds. Furthermore, you can still create passive income with the correct fund that grows over time, which can be a great way to save for retirement or make another investment. When you choose to invest in a mutual fund, your money is pooled along with that of other investors and invested in a number of securities based on a carefully crafted asset allocation strategy by a seasoned fund manager.
4. Purchase a Rental Property
Investing in real estate and renting it out is another way to make passive income. Naturally, you will need to make an initial investment to buy the property and make the effort to look for reliable tenants who will pay you rent on time.
5. Invest in Real Estate Investment Trusts (REITs)
Property rentals are another way to make passive income. Assume that you’d want to avoid the substantial down payment or up-front time commitment that comes with owning real estate property. In that case, you might think about investing in a real estate investment trust.
Real Estate Investment Trust (REIT) lets you invest money into a business that owns and manages real estate. Commercial real estate, such as offices or other commercial spaces, usually involves an upfront investment that covers both the cost of the real estate and the time spent finding reputable tenants.
6. Peer-to-Peer Lending
Platforms for peer-to-peer lending let you loan money to creditworthy borrowers who will subsequently repay the loan along with interest in the form of EMIs. You can profit from interest payments made by the borrowers to generate passive income. Do note that it may be smarter to offer numerous small loans instead of a few larger ones.
7. Selling Online
Selling various products online has become one of the most popular ways to earn a passive income in recent years. All you have to do is find a unique product that has demand in the market, market it and sell it using various online channels.
8. Affiliate Marketing Programmes
In affiliate marketing programmes, you can collaborate with big brands to sell their goods or services to their target audience. It is an excellent technique for individuals who already have a blog, website, or other platforms, or have a decent following on social media channels. However, affiliate marketing isn’t entirely passive because every blog or online post you create will require an upfront time investment.
Types of Passive Income
Here are the two most popular types of passive income, depending on how they generate income:
Create: You earn passive income by putting in work and time. For example, selling writing books, digital products, creating music, or making another product that earns money.
Invest: You earn money by investing in different assets. For example, dividend stocks, renting out a room in your house, mutual funds, REITs, interest from savings accounts and other sources, capital gains, and royalties.
Reasons for Building Passive Income
The most effective method for creating wealth is passive income. Eventually, even if you work a full-time job, you will benefit from receiving additional payment without having to put in extra work for it.
Finding a way to make passive money has several advantages. With the added income, you can increase your wealth-building capacity, making early retirement simple. In addition, passive income serves as a fallback if you lose your full-time job and as a replacement if you outlive your retirement plan.
Not to mention, building passive income will also help you achieve your goals much earlier, repay your debts, and invest more.
Taxation on Passive Income
The following table highlights the tax structure on passive income in India:
Yes – Income from house property
Section 24- Standard deduction of 30% of Net Annual Value Section 80C – Rebate of up to Rs.1.5 lakh per annum on interest repayment
Yes – Income from other sources
Only for the interest incurred to earn dividends – 20% of the total dividend
Yes – Income from other sources
Yes – Income from other sources
Interest earned up to Rs.10,000 is exempt from taxation
PPF Interest and Maturity
Partially Taxable on maturity
Section 80CCD1 – Yearly contributions to NPS up to Rs.1.5 lakh per annum (10% of basic salary)
Difference Between Passive Income and Active Income
The primary distinction between active and passive income is the work that needs to be put in to earn the income. Passive income sources necessitate some initial effort, the process can be put on auto-pilot once the basics have been established. Active income is based on the traditional income model which requires effort every day.
The idea is straightforward: in active income, you carry out the tasks you get paid for. For online creators, artists, and social media influencers with full-time jobs or other responsibilities who want to continue building their brands, passive income is an excellent side business.
Here are a few crucial points to keep in mind if you are a beginner to passive income:
Passive incomes don’t get you rich quickly. Though you don’t have to put in much active work, you would still need to put in some investment or work upfront. Once you start earning pasive income in the form of interests, dividends, etc., you achieve financial security over time.
You might still have to put in some additional labor to earn that extra income. For example, if you have rented a property, your rental property must be maintained-well throughout.
Passive income is subtect to taxation, thought it’s taxed different than your redular income.
It’s likely that you already possess the resources or skills to generate passive income. However, you should keep in mind that passive income is not quite literally passive. The initial analysis and effort involved in purchasing the assets, setting it up and passively managing it is significant. You can earn more in the long run with little to no effort if you set up passive income investments, whether investing in a new business idea or purchasing income-generating securities.
Q1. What are the examples of passive income?
Ans: The most common passive income ideas include owning a business, renting a property, private equity, holding shares in a stock market and peer-to-peer lending.
Q2. What are the three forms of passive income?
Ans: People generally generate passive income in three main ways: investing, asset building and asset sharing.
Q3. How do you generate passive income?
Ans: As discussed above, there are multiple ways of earning passive income, including investing in stocks, writing a book, renting a property or car, affiliate marketing programs, etc.
Q4. How can I start passive income with no money?
Ans: You can earn passive income with little to no investment by building a Passive Income business, investing in stocks, investing in real estate, investing in cryptocurrencies, becoming an online creator, building single-use software and apps, affiliate marketing and owning digital real estate.
Q5. Do I have to pay tax on passive income?
Ans: The passive income you earn is taxable in India under Section 80C, Section 24 and Section 80CCD1. Check the table mentioned in the article to get the full picture.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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