Knowing the best passive income sources in India can help you unlock multiple streams of income, which is especially important in this day and age. This blog contains a list of the top sources of passive income just for you!
What is a Passive Income Source?
A passive income source is an investment that gives you consistent returns or interest without any extra effort.
You relax while your money works for you – it’s that simple! Think of examples like investing in dividend stocks or rental income.
That’s why this form of investing is known as passive investing. As opposed to actively monitoring assets or buying and selling frequently, passive investors buy and forget.
But while they forget, the passive investment keeps rewarding them with more money.
In fact, having multiple sources of passive income is important because it allows you to hit your financial goals. F.I.R.E., for example, is built entirely on the principle of generating passive income.
Relatively outlandish goals aside, not every working professional has the luxury of a getting pension after retirement.
A portfolio of top passive income investments can act as a pension! Or, it can serve as a decent income when you’re in between jobs.
Thus, a list of passive income ideas can be useful for wealth creation in the long run. The following list is exactly that!
Best Passive Income Sources in India
A passive income source must be solid, stable, and accessible in order to be the best. The following list includes such options.
1. Dividend Income from Stocks and Mutual Funds
You can create a regular passive income source in the form of dividend earnings from mutual funds and stocks.
There are certain stocks and mutual funds that reward shareholders with dividends. These dividends are extra income that you can get on top of the returns generated by the stock.
The trick is to build a portfolio of High Dividend Blue Chip Stocks in India, or a portfolio that includes dividend yield mutual funds.
Of course, dividends are a fraction of the total share price so you’ll have to hold a decent number of stocks to sizeable earn passive income.
Dividends depend on the financial performance of companies and may be hampered by prevailing market conditions.
2. Interest Income from Bonds
Investing in bonds is a source of passive income because of the coupon rate.
Being a fixed-income instrument, bonds offer interest that is fixed. This is known as the coupon rate.
You can expect to earn anywhere from 2% to 7% interest on bonds that is paid out periodically, say quarterly, half-yearly, or yearly.
By the way, there are 0% interest bonds as well that you can read about here: How to Buy Government Bonds in India?
The bigger the investment, the bigger the interest payouts. But you need to choose the right bonds.
Bonds are prone to the risk of default, meaning the issuer may not be able to pay your principal back, let alone interest.
One way of avoiding this risk is to evaluate your risk tolerance and the creditworthiness of the institution issuing the bonds while comparing the interest rates, tenure, and liquidity before investing.
3. Rental Income from Real Estate
Renting out properties is one of the popular sources of passive income because the tenant pays a monthly rent.
Buying property is the dream for most Indian working professionals. Whether it’s an apartment or a piece of land, property often trumps most other forms of investment in India.
Because it is just that – an investment. There’s a degree of legwork you need to do to set up a rental property, starting off with paperwork and documentation – title deed, land registry records, and many more.
Then comes the hefty down payment and long-term loan, typically spread over decades. Once everything is in place, recovering your initial investment may take several years.
You’ll need to find a tenant and the rent they’ll pay will be based on factors like the locale, number of bedrooms, and others.
But after that, the passive income will be an on-paper guarantee for the tenure of the rent agreement. This makes rental income one of the top passive income sources.
Read: Stocks vs Real Estate
4. Royalties from Intellectual Property
You can monetize your intellectual property like music, books, or innovations to establish a source of passive income.
This will require you to create something of value and then apply for a copyright or patent to protect it and maintain exclusivity.
If it garners enough interest, you can earn royalties every time an individual, product, or service uses your creation.
The initial creation journey may take weeks or months or even years, but it can pay dividends in the long run, quite literally.
Pick any artist on a music streaming service. They record music and distribute it across streaming platforms, in turn getting a sum of money for every play.
Michael Jordan was an exceptional basketball player. He continues to earn royalties from Nike’s Jordan sneakers series to date, even though he retired decades ago.
Keep in mind that royalties are subject to issues like fluctuating income, copyright infringement, market saturation, and complex distribution networks.
Reading this blog in your late 20s and 30s means you may not have the chance to become an exceptional sportsperson, but you do have enough time to create multiple sources of passive income!
5. Income from Peer-to-Peer Lending
Peer to Peer or P2P lending is a recent passive income source that’s gaining popularity.
The logic behind this mode of investing is the lack of a middleman (banks), thus leading to more profits for lenders (investors) and relatively lower interest rates for borrowers.
For example, an investor can select an amount to lend and a regulated P2P platform will distribute it amongst multiple borrowers.
Much like fixed deposits, P2P lending comes with fixed interest rates and lock-in periods. The passive income will be in proportion to your investment but there are a few factors you must evaluate.
- Total Users
- Avg. Credit Rating of Borrowers
- Repayment Tenures
Income from P2P lending carries challenges like defaulting borrowers, limited diversification, regulatory changes, and liquidity concerns.
Considering the nascent nature of this domain, it’s important to exercise caution when exploring options like P2P lending.
6. Affiliate Marketing and Online Advertising
A thriving social media ecosystem means that you can promote products and services from different brands to generate passive income as an affiliate marketer.
While getting followers, visibility, and traffic is known to be hard, there’s scope of earning recurring income from more than a single brand once your channel(s) is thriving.
- Join affiliate programs and create engaging content to attract more visitors.
- Place affiliate backlinks on your website or social media handles.
- Earn commissions through purchases made via the link.
Challenges with affiliate marketing include competition, ad blockers, changing algorithms, and declining consumer trust.
7. Income from Dropshipping
Much like affiliate marketing, dropping is the result of a thriving internet ecosystem.
Shopping online has become easier and much more accessible, and a large chunk of users want to order products from the comfort of their homes. You can launch dropshipping services to fulfill this need.
Dropshipping is a method of selling products online without owning the inventory.
The dropshipping platform will tie up with various sellers & suppliers who’ll sell the products at a wholesale price, while the platform will list the products at a price higher than the wholesale price.
- Identify profitable segments and build an online store around relevant products.
- Optimize the website for conversions and offer excellent customer service.
- Use social media and other advertising channels to market your store.
This passive income source carries fierce competition, inventory management, order fulfillment, customer acquisition costs, and more.
Not to forget, dropshippers have to be compliant with several legalities and regulations dropshippers.
8. Leasing Out Assets or Equipment
You can invest in assets or equipment and then rent them out to generate passive income.
- Identify high-demand products and determine competitive rental rates.
- Ensure proper maintenance and upgrades.
- Draft proper rental agreements and measures to ensure the safe return of the products.
Bear in mind that you might face challenges with finding reliable tenants, upkeep costs, legal obligations, insurance coverage, and asset depreciation.
9. Income from Mobile Apps or Software Products
If you have the requisite technical skills, you can create and monetize mobile apps or software packages.
- Identify a target niche before developing a mobile app or software.
- Offer a free version to attract users and then offer in-app purchases or ads to earn revenue.
- Ensure regular updates and enhancements to keep the users engaged with the app.
While looking for income from mobile apps or software products you can face issues like intense competition, user retention, platform restrictions, and software bugs.
10. Income from YouTube Channels or Podcasts
Starting your YouTube channel or a podcast is one of the popular sources of passive income in India.
- Identify a niche and start creating engaging content around the theme.
- Once you build a loyal audience, you can monetize the content through ads, sponsorships, or merchandise.
Challenges with income from YouTube channels or podcasts may include consistency, audience growth, algorithm changes, copyright claims, and monetization policies.
Why Diversify Your Income Streams?
Diversifying your investments across multiple best passive income sources has several benefits, including the following:
1. Risk Mitigation
Relying on a single source of income can leave you vulnerable during unexpected situations. With multiple income sources, you can reduce the impact of a single income stream experiencing some problems.
2. Personal Satisfaction
Creating a stream of income sources can help you achieve your financial goals or in some cases, early retirement. That’s why diversifying your passive income across various sources can be helpful, as it can give you a better chance at success.
3. Wealth Creation
Diversifying your income sources can help with your wealth creation goals. Additional income offers you the leverage to invest and build assets for a secure and fulfilling future.
Diversifying your income sources is a smart financial strategy. By spreading risk and increasing income potential with the best passive income sources, you can ensure long-term financial well-being.
Note: The passive income sources mentioned above are examples, not recommendations. Please do your own due diligence and research before investing in any asset or financial instrument.