Passive Income is defined as income that you have to put in little or no effort for. Let’s dig a little deeper into what passive income means in simple terms and talk about all the different ways to generate it.
In this blog, we will touch upon some of the best passive income ideas for Indians. The interesting thing is that you may be equipped to generate passive income through several means.
Before we talk about all the different ways to generate passive income, let’s dig a little deeper into what passive income means in simple terms.
Passive Income is defined as income that you have to put in little or no effort for. Passive income is a concept that is becoming popular and a lot of people are seeking ways to generate passive income.
What passive income means essentially is that you can make money regularly by putting in a lot of concentrated effort over a short period of time. The meaning of passive income for most Indians, however, is income coming from rent, partnerships, businesses where they aren’t doing any high-effort work.
When people talk about passive income, what one originally refers to is income coming from unearned sources. It can be by fruitful investments made into rental property, financial investments, partnered business etc.
Here's a small list of things one should consider before starting to earn passive income.
1. What sort of upfront investments am I able to make to source a passive income?
2. Do I possess any abilities or expertise that others would find useful to build in?
3. How can I make the process of imparting my knowledge with people from the same interest?
There might be steps you can do to boost your short-term profits, depending on the passive income source you decide to pursue. For instance, some sellers of digital goods will employ a variety of marketing techniques to make their products more accessible to consumers, increasing sales in a shorter amount of time. Others might expand the scope of their passive income business with additional goods that complement their initial offerings in an effort to recoup a clientele that has already been won over.
There are many types of passive income. Given below are some of the best passive income ideas:
Owning land, property or even storage space can be a great way of generating passive income. Many people become landlords.
This means you work hard to collect whatever money is required to pay for your first rental property.
This is a difficult move in today’s economic situation. More importantly, there is very little liquidity in real estate. It isn’t the easiest or the safest path to passive income.
Investing in mutual funds is one of the best ways to generate passive income. You can choose mutual funds based on your risk appetite and timeframe.
This means you not only get to create wealth passively you also get to choose how much risk you are willing to take. If you have a trained professional to guide you through this process you can build the perfect portfolio for your financial goals.
Investing in stocks is another brilliant way of creating passive income. This is, of course, something that requires a certain level of expertise and knowledge. While stocks can potentially generate a lot of passive income, it is best to invest in stocks under the guidance of an expert advisor.
P2P lending is basically an alternative investment path. You will essentially be lending money to borrowers and earning interest on top of it. It is best to invest in P2P lending through an established mediator. This way you invest money but reduce the risk associated with P2P lending by a huge margin.
Asset leasing allows you to earn passive income. You can become an investor who leases out tangible assets like cars, furniture, equipment, or intangible assets like copyrights.
As a lessor, you'll receive an interest (passive income) along with the principal amount from the lessee for the duration of the lease.
This is one of the oldest ways of creating passive income. The interest you earn from a Bank FD is low. However, people who are extremely risk-averse tend to gravitate towards bank FDs due to the low-risk factor.
If you’re willing to expand your horizons then you can invest in a liquid fund which is the type of mutual fund that offers high liquidity – this means your money can be taken in when you need it. Unlike Fixed Deposits, liquid funds do not have long lock-in periods.
Here are a few money saving tips that can help in ensuring you make the most of the income coming in with you regular job as well.
This passive income generating idea is for the long run. Starting a business would require you to work hard until your business is on autopilot.
Once the business does not require you to actively participate, it can become a lucrative source of income for you through royalties, stocks, bonds, etc.
Useful stat: Approximately 25% of businesses survive for 15 years or more. Starting your own business has the potential to earn you unlimited money. But the risk is also exceptionally high.
Becoming a serial investor has its perks. Your investment in a business can generate passive income for you through debentures, dividends, royalties, etc.
At the same time, you have to bank on the company to perform and deliver steady profits and growth. This has its own risks, as most angel investors would know.
Perhaps one of the easiest passive income ideas is to become an influencer. The 3 main pillars of influencer marketing are content creation, building relationships and social media influence.
However, not everybody gets to be an influencer. You need to have a considerable amount of followers on social media and a high engagement rate with your followers, among other things.
This has the same challenges as generating passive income through a rental property. However, becoming an Airbnb affiliate has its perks.
As an Airbnb host, you can set your own price and list your house on the website for free. Airbnb also has a host protection program through which it guarantees a cover of $1,000,000 in damages (in certain countries).
After an initial lump sum investment, an annuity plan can help you generate regular income for life. You can choose from different annuity plans like Immediate annuity plans or Deferred annuity plans. However, it is important to choose the right annuity plan.
Financial freedom is the end goal of generating multiple streams of passive income. That's why conventional wisdom suggests that investors should work towards investing in as many as 7 assets that can generate passive income.
However, this isn't something that can happen overnight. It will take time and diligent planning to build multiple sources of passive income.
You can start by referring to the passive income ideas above for suggestions. Most investors are known to start off with stocks or mutual funds as their first passive income source. Others are known to save up and buy a property like a house that can generate monthly rental income.
Remember to consult a reliable financial advisor to understand what will work for you when it comes to investing in passive income sources.
Passive income taxes are subjected differently.
Even if passive income is not subject to self-employment taxes or FICA, regular income taxes are still due. This is just your standard income that is liable to different tax slabs (10%, 12%, 22%, 24%, 32%, 35%, and 37%).
You will incur a capital gain or loss if you sell your stake in a passive activity, such as selling a rental property.
If you make a lot of money, you can additionally be subject to the net investment income tax (NIIT), which is an extra 3.8%.
There are many different forms of Passive income. It could roughly range to having 20-30+ forms of passive income.
It could all start from Selling Digital products, Property investments, run an affiliate marketing business, influencer marketing, blogging, investing in stock market etc.
Only individuals, trusts, estates, personal service corporations, and tightly owned C corporations may deduct passive activity losses from passive activity revenue. Passive income is the share of partnership earnings that goes to a limited partner.
Until a taxpayer has passive income available, the loss from passive activities for their tax year is disallowed and carried forward. The term "passive activity loss" refers to the difference between passive activity gross revenue from all passive activities and passive activity deductions for the tax year.
Passive income means making your money work for you. You can generate passive income by investing in assets that generate lucrative returns, recurring payouts, or both. The most popular forms of passive income ideas include:
The best sources of passive income are the ones that generate lucrative returns immediately or after a period of time. Asset leasing by Grip generates monthly payouts from the next month of your investment while mutual funds are known to generate passive income through healthy returns after 5+ years.
Never depend on a single income, make an investment to create a second source. - Warren Buffet
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