The greater the passive income you can build, the freer you will become. - Todd M. Fleming
Financial freedom doesn’t have a secret formula to it. The only standard recipe is investing in the right high-quality assets that can help you generate passive income.
But it’s a common misconception that only the rich have access to the best passive income sources. Truth is, most investors can build a portfolio that generates passive income (a reliable app like Cube Wealth can help!)
Let’s start by understanding what it means to generate passive income.
What Is A Passive Income Source For Working Professionals?
This example will help you understand both passive income and the sources that can generate it for you:
Assume you earn ₹1,00,000 a month. You take out 30% of this income which is ₹30,000 and invest it in an asset like mutual funds. After 6 months, you notice that the ₹30,000 gains value and is now ₹32,000.
This didn’t happen through magic. It was due to the power of compounding which is a popular way of generating passive income. Here, the passive income is ₹2000 and the passive income source is mutual funds.
Now, you can easily infer from the example that you did not have to work for the profits (₹2000). After all, you work hard for your money and it is only right that it works for you in return.
Your money should generate recurring income either through capital gains or interest payment. That’s what passive income means in a nutshell.
Top 10 Best Sources Of Passive Income For Working Professionals
Now that you know what it means to generate passive income, it's time to move on to top passive income sources for working professionals! This list includes the likes of:
- Debt mutual funds
- Large-cap mutual funds
- Multi-cap mutual funds
- International mutual funds
- Blue-chip stocks
- US Stocks
- P2P Lending
- Mid-cap stocks
- Mid-cap mutual funds
- Small-cap mutual funds
1. Debt Mutual Funds
A debt fund invests in debt and money market instruments like bonds, t-bills, reverse repo, etc. It generates capital gains through the interest it receives on its investments.
Usually, the interest rate is not very high but is enough to generate conservative gains in the range of 4-9%. Thus, debt funds may be a useful passive income source for conservative investors.
Moreover, debt funds have the potential to outperform traditional investment options like bank fixed deposits or a savings account that usually generate capital gains of 3-5% (on a good day).
Top 3 Benefits Of Debt Funds As A Passive Income Source
- Relatively safer than other mutual funds
- Predictable returns
- Low minimum investment amount (₹5,000 on Cube Wealth)
Here’s what happens when you invest ₹20,000 a month in debt funds that generate 8% returns on average:
Debt Funds Available On The Cube Wealth App
1. IDFC Banking & PSU Debt Fund
2. ICICI Prudential Corporate Bond Fund
Cube gives you access to 10+ top performing debt funds curated by Wealth First. Download the Cube Wealth app for the complete list of debt funds.
2. Large-Cap Mutual Funds
Large-cap mutual funds are equity funds that invest in large-cap stocks. By definition, large-cap stocks include the top 100 companies in India in terms of market capitalization.
These stocks are known to be relatively stable and have a stellar track record since they’re the shares of industry-leading companies like Reliance, TCS, Infosys, etc.
Large-cap funds look to capitalise on this stability and track record to generate capital gains that have historically been in the range of 9-16% over the long term.
Top 3 Benefits Of Large-cap Funds As A Passive Income Source
- Broad diversification
- Relatively safer than small-cap and mid-cap funds
- Low minimum investment amount (₹5,000 on Cube Wealth)
Here’s what happens when you invest ₹20,000 a month in large-cap funds that generate 12% returns on average:
Large-cap Funds Available On The Cube Wealth App
1. Mirae Asset Large Cap Fund
2. DSP Nifty Next 50 Index Fund
Download the Cube Wealth app for more details about large-cap funds
3. Multi-Cap Mutual Funds
Multi-cap funds are equity funds that invest in stocks across market caps. The underlying principle of these funds is to leverage the strengths of the large-cap, mid-cap and small-cap categories.
This allows multi-cap funds to generate potentially higher returns than large-cap funds. The downside is the presence of small-cap and mid-cap stocks that increases the volatility factor of multi-cap funds.
Overall, multi-cap funds have historically generated 11-19% returns over the long term.
Top 3 Benefits Of Multi-cap Funds As A Passive Income Source
- Diversification across market caps
- Potentially safer than small-cap and mid-cap funds
- Low minimum investment amount (₹6,000 on Cube Wealth)
Here’s what happens when you invest ₹20,000 a month in multi-cap funds that generate 14% returns on average:
Multi-cap Funds Currently Being Recommended On The Cube Wealth App
1. SBI Magnum Multicap Fund
2. ICICI Prudential India Opportunities Fund
While we update our blogs regularly we suggest you Download the Cube Wealth app to see the best multi-cap funds being recommended today.
4. International Mutual Funds
International mutual funds invest in stocks of companies from countries like the US, Japan, China, Germany, etc. Investing in direct equity of foreign companies has its perks but requires thorough research.
Busy professionals may not have the time to track and keep up with the stock price and currency fluctuations. Moreover, other factors like exchange rate and brokerage charges come into the picture.
International funds can be a potential passive income source for working professionals because a fund manager analyses and invests in the right international stocks of high flying companies like Amazon, Apple, Google, Tesla, etc.
International funds have been known to generate returns of 14-20%. Let’s look at the benefits of international funds.
Top 3 Benefits Of International Funds As A Passive Income Source
- Potentially high returns
- Geographical diversification
- Low minimum investment amount (₹10,000 on Cube Wealth)
Here’s what happens when you invest ₹20,000 a month in international funds that generate 18% returns on average:
International Funds Available On The Cube Wealth App
1. Edelweiss Greater China Equity Off-shore Fund
2. Franklin India Feeder - Franklin U.S. Opportunities Fund
Download the Cube Wealth app for more international fund recommendations
5. Blue-Chip Stocks
Blue-chip stocks are shares of industry-leading or iconic companies that have a history of delivering stable returns. These companies are leaders in their own right and have a track record to back it up.
In India, the shares of the top 100 companies can be classified as blue-chip stocks and can be found in the NIFTY 100 index. Few examples of blue-chip stocks include:
- Larsen & Toubro Ltd.
- HDFC Bank Ltd.
- Bharat Petroleum Corporation Ltd.
- Tata Motors Ltd.
Top 3 Benefits Of Blue-chip Stocks As A Passive Income Source
- Historically consistent returns
- Reliable dividends
- Long term capital growth
While blue-chip stocks are beneficial, there are 100 stocks to choose from and would require you to analyse the balance sheet, past performance, and other facets of every company.
But there is a convenient way to invest in blue-chip stocks - Cube Wealth gives you access to stock advice from Purnartha, Cube’s Indian equities partner, who have 7500+ clients and an AUM of 7,000+ crores.
Click here for Part 2 - 10 Top Passive Income Sources In India For Working Professionals - Part 2:
10 Top Passive Income Sources In India For Working Professionals - Part 2
FAQs on Passive Income Sources
Q. What are the best sources of passive income in India?
Passive income sources in India include assets that generate dividends like Indian stocks, US stocks, and mutual funds. Interest income generating assets like bonds, FDs, RDs, and others also count as passive income sources. But that's not all.
Alternative investments (assets that don't fall under the traditional branch of investing) like P2P lending, Consumer Loans via Merchants, Asset Leasing, etc. also generate recurring payouts that's passive income.
Q. How can I generate passive monthly income in India?
You can generate a monthly passive income by investing in assets like P2P lending, consumer loans via merchants, and asset leasing on an app like Cube Wealth. These assets are non-market linked investments that help you earn recurring payouts.
Q. What are the 5 sources of income?
Income can broadly be divided into 5 categories, which include:
- Salary income: this is the money that you earn by working for a company
- Gains from a business: profits that you earn from running a business
- Dividend income: passive income from stocks and mutual funds
- Rental income: monthly rent earned from tenants on a property
- Others: income from crypto, gambling, and others that don't fall into the categories above
Q. How can I earn extra income?
Investors have been known to turn to passive income sources like mutual funds, stocks, p2p lending, asset leasing, property, and more in order to earn extra income.
Passive income is a financial strategy that can provide working professionals in India with greater financial security and independence. The ten passive income sources discussed in this guide offer a range of opportunities for creating wealth and diversifying income streams. While they can provide financial stability and the potential for long-term growth, it's crucial to understand that passive income sources are not risk-free. Careful planning, risk assessment, and a long-term perspective are key to success. By diversifying income streams and consulting with financial advisors when necessary, working professionals can build a more resilient financial future that goes beyond their regular employment income.