Passive income is wonderful because it’s your money working for you and not the other way around.
That said, the trick is to pick the right investments that can generate passive income not just for a year but for years to come.
Lucky for you, we’ve compiled a list of the top 10 best passive income ideas for 2023!
Top 15 Best Passive Income Ideas for 2023
A passive income idea has a better chance of working if it’s tried and tested, meaning it has strong fundamentals and a track record of delivering lucrative returns over the long run.
There’s a special focus on the long run because true wealth is typically generated over time in the stock market, not overnight. This is true regardless of the era.
You’ll notice that the following list of best passive income ideas contains some of these evergreen investments. Others are relatively new but have garnered a solid base of investors.
You may already know that a stock is an equity share of a company listed on a stock exchange. Buying a stock makes you a shareholder who has skin in the company’s game.
If the company does well and the share price goes up, you would stand to make more money on top of what you’ve invested. Doesn’t this sound like… one of the best ways to make passive income? It is!
The growth of Indices, which are composed of a set of stocks, implies that shares do well over the long run. Take this snapshot of blue-chip stock as an example.
Let’s say you invested Rs. 10,00,000 in 04/2018 in the company whose stock graph is shown above. You would’ve got ~1,048 shares. That investment would’ve been worth Rs. 24,37,700.
But this logic applies to stocks with solid fundamentals and a bright future. How to spot these shares will depend on your ability to analyze companies.
Stocks may be great but the problem of picking the right stocks is a challenging one. ETFs may be able to solve this problem as they’re a basket of stocks.
Most ETFs typically mirror a stock index like Nifty 50. For example, Nifty BeES consists of more or less the same stocks as Nifty 50. Historical data suggests that the returns are similar as well.
This means that an ETF can allow you to generate passive income by growing your wealth with the market. This makes ETFs one of the best passive income ideas for 2023
Check out the image below to see the growth of Nifty 50.
By the way, you can start investing in ETFs on Dhan with daily, weekly, and monthly SIPs. Watch the video below to know more.
Think of a smallcase as a customizable basket of stocks and ETFs managed by experts. An everyday investor who has little to no time to monitor the market can leave the stock picking to the experts.
This takes away the burden of research but, at the same time, you still have a degree of control over your investment.
But what about volatility? Turns out, there are smallcases tailored to various risk profiles.
For example, there are balanced smallcases that fall under the “all-weather” category while there are baskets designed for those with a high risk appetite. Some even have stocks and gold together.
Either way, every smallcase is a market-linked instrument which means under the right circumstances and with time, they have the potential to generate passive income.
We recently enabled the second phase of the smallcase experience on Dhan. Watch the following video to know more.
4. Mutual Funds
The name mutual fund describes what it is – money pooled from hundreds and thousands of investors which is subsequently invested in assets like stocks and bonds by a financial expert.
This expert is known as a fund manager who has a team to assist them with the buying and selling of assets, the goal of which is to create wealth for investors.
Mutual funds come in various shapes and sizes, right from low-cost index funds that mirror stock indices like Nifty 50 to seemingly risky contra mutual funds.
While noise around mutual funds may have increased rapidly across the past few years, they’ve been one of the best Passive Income Ideas for decades.
If you’d like to read more about the world of mutual funds, refer to these blogs:
- What Are Mutual Funds and How Do They Work?
- Different Types of Mutual Fund Schemes
- Mutual Funds Vs PPF: What is Better for You?
5. Fixed Deposits
Perhaps the most preferred asset after gold, Fixed Deposits (FDs) are a mainstay in the Indian passive income space. The common reasons for this preference include safety and guarantee.
There was a time when FDs could generate more than 10-11% returns. We’re past that time. The average FD in 2023 yields a return of more than 6% for the long term.
That said, FDs still find suitors today because of the safety angle. Is 6-7% enough to generate passive income? Maybe. Maybe not. But that depends entirely on your financial goals and risk profile.
6. Alternative Investments
An alternative investment is any asset that doesn’t fall under the traditional umbrella of stocks, bonds, and cash. Hence the term “alternative”, they’re alternatives to traditional investments.
Alternative investments include interesting, at times a whacky mix of old and traditional forms of wealth creation avenues like:
- Art Collecting
- P2P Lending
- Wine Collecting
- Asset Leasing
- Hedge Funds
The goal of these kinds of alternatives is to generate passive income without being tied to the traditional securities market.
In fact, alternative investments are used as a tool for diversification because they have little to no correlation with the securities market.
For context, there’s an old bottle of wine that was sold for $558,000. The person who holds it may, if they wish to, sell it for a lot more.
On the other hand, there are recognizable alternative investments like P2P lending where there’s a fixed lock-in and returns.
That’s why many view alternative investments as one of the best ways to make passive income in the modern era.
The Public Provident Fund (PPF) is one of the oldest savnigs schemes in India. It generates a fixed return that varies by the fiscal year. Currently, investing in PPF can fetch you 7.1% p.a.
Not so long ago, the returns stood at 7.9% p.a. While the interest rate is slightly higher than FDs, PPFs carry a lock-in of 15 years. We’re talking about passive income in the long run.
PPFs allow you to do exactly that, which is why some investors think of it as a lucrative passive income source, especially because of the fixed returns and Central Government backing.
The National Pension Scheme (NPS) is a government-backed investment vehicle. It was introduced so that Indians could save for retirement. Thus, NPS is a passive income idea for the future.
All that’s great but what about the returns? NPS is known to generate between 9-12% returns on average, putting it above other government-backed schemes like PPF and FDs.
But there’s a major difference between NPS and other government-backed schemes. NPS is market-linked in that money is invested in stocks and bonds.
This means that if you’re planning to earn passive income from NPS after you retire, you must evaluate your risk profile as you would for a market-linked asset like stocks or mutual funds.
9. Real Estate
Real estate gives stiff competition to gold and FDs in India. You must’ve heard friends and family talk about saving up to buy at least one property and earn rental income from it.
That’s the kind of passive income that you can earn from real estate, although you must make a hefty commitment in terms of time and money to procure property in the first place.
Data suggests that you’ll have to pay Rs, 6,150 per square foot on average (across India) if you’re looking to buy property in India. However, the price in locales around affluent neighborhoods would be much higher.
Furthermore, the rental yield is close to 3% on average, which means a house that costs Rs. 1 Cr could potentially generate a passive rental income of Rs. 3,00,000 per year.
10. Real Estate Investment Trust (REIT)
Buying a property can be an uphill task for many but real estate has the potential to offer lucrative returns. That’s why Real Estate Investment Trusts (REITs) exist.
REITs are just like mutual funds but for real estate. A REIT will pool money from several investors to purchase properties that generate income. That said, REITs can also be traded like stocks.
Either way, investors themselves won’t have to worry about managing properties or finding tenants.
Furthermore, income from REIT investments is generally in the form of dividends. This sets up investors to earn passive income, although principal growth may not be the top aspect of REITs.
11. Dividend Stocks
We’ve already spoken about stocks but we saved something for this section. You see, stocks come in various forms. Some offer pure growth opportunities. Others offer growth and dividends.
A publicly traded company that makes profits may choose to distribute the extra cash to its shareholders. This is known as a dividend and is often represented by the dividend yield.
This means you’ll receive some extra cash on top of the growth of the stock, either quarterly, half yearly, or yearly. To make your research simpler, we’ve compiled a list of the Top 10 Highest Dividend Paying Stocks in India!
12. Peer-to-Peer Lending (P2P Lending)
Peer-to-Peer Lending is a relatively new yet booming source of passive income in India. The way it works is simple.
You as an investor lend money to borrowers and in turn, earn interest on top of your principal amount. Lending to multiple borrowers will potentially bring down your risk through diversification.
The returns generated by P2P Lending are often compared to Bank FDs and similar fixed-income securities.
While P2P differs from the others in terms of structure – there is no middleman like a bank – it does carry a fixed lock-in period.
This means you can earn a steady stream of passive income throughout the lock-in. But you must also pay keen attention to the platform, diversification, and your risk profile before investing.
13. Affiliate Marketing
If you have a decent following online on any social media platform like Twitter, Instagram, or others, you’ll have the opportunity to become an Affiliate of a brand or multiple brands.
Being an Affiliate means marketing the brand’s products to your sea of followers in exchange for commissions. Sometimes, these commissions are recurring while others are one-time payments.
Digital Products: If you have a talent or skill, you can create digital products such as ebooks, courses, or templates and sell them online. Once you create the product, you can continue to earn income from it without having to put in any additional effort.
14. Real Estate Crowdfunding
Crowdfunding is a way to raise capital from hundreds or even thousands of investors to purchase an asset, in this case, real estate.
Every investor holds a share in the property and gets compensation according to it.
You could say that Real Estate Crowdfunding is the newer, shinier version of Real Estate and REITs, although the regulatory landscape is in its infancy.
15. Start a YouTube Channel
By creating a YouTube channel and monetizing it through ads, sponsorships, and merchandise sales, you can earn passive income which has the potential to increase as you scale your content output.
While it may take time and effort to build a subscriber base and view count, you can continue to earn income from your videos even after your channel is on autopilot.
The best passive income ideas for 2023 include assets that have a historical track record of being solid like stocks, mutual funds, FDs, PPF, NPS, and real estate as well as modern avenues stemming from digitization and accessibility like smallcase and REITs.
Some more passive income ideas include investing in dividend stocks, P2P Lending, Affiliate Marketing, Real Estate Crowdfunding, and starting a YouTube channel.
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