Short answer: Yes, it is possible to generate passive income with alternative investments. Some alternative investments generating recurring income through interest payments, rent, royalties, etc.
Passive income is a dream for many Indian investors. The truth is, generating passive income is difficult but not impossible with the right investment habits, trusted advisors and a reliable platform like Cube.
Let’s see how you can generate passive income with alternative investments. Along the way, we’ll also cover the best passive income generating alternative investments in India. Let’s start by understanding what alternative investments are.
What Are Alternative Investments?
An alternative investment includes any asset that does not fall under the category of stocks, bonds and cash. Alternative investments come in all shapes and sizes (literally) ranging from real estate to stamps.
Alternative investments are generally termed as non-traditional investments or “Alts”. These investments are unrelated to the markets and offer a great avenue for diversification.
Not much of a reader? Watch this video to know more about alternative investment options.
Fun fact: Alternative investments make up 12% of the overall investment landscape across the world.
What Is Passive Income?
In simple terms, passive income means making your money work for you. The classic example that is often cited among investors is your money growing while you sleep.
Passive income may include interest and dividends earned from stocks, mutual funds, owning a business, P2P lending, or rent from real estate properties.
Here’s a table that includes a list of traditional and non-traditional passive income generating ideas.
Consumer loans via merchants
Bank fixed deposit
Starting a business
Unlike traditional investments, the broad classification of alternative investments includes several assets that can generate passive income over the long term.
Some of these alternative investments are more affordable and efficient than others. Read on to know more about passive income generating investments in depth.
Real estate is an age-old alternative investment with its own pros and cons. A prime apartment in a metropolitan city like Mumbai or Hyderabad can fetch an average monthly rent between ₹11,000 to ₹38,000.
However, the initial investment involved in buying a piece of property is exorbitantly high. Most investors will have to take a loan (partly or completely) to finance their real estate purchase.
Thus, there are 2 aspects to a real estate investment:
Paying off the EMI
Earning back the invested amount
Financials by City
Average Monthly Rent
Total Returns (20 years)
Average Monthly EMI
Total Loan Amount Paid (20 years)
Note: The above-mentioned data assumes a loan interest rate of 10.5% payable across 20 years. Initial property rate for Mumbai is assumed to be ₹1,00,00,000 and for Hyderabad to be ₹50,00,000.
On top of that, real estate transactions involve complicated paperwork, physical travel and other cons. This can be a cumbersome process as a whole.
4. Venture Capital
Becoming a venture capitalist would involve investing in private businesses that are usually small in size. In return for your investment, you’ll get equity and monthly dividend payouts. This is a possible avenue for passive income generation.
If the business is sold, you’ll eventually get a large buyout cheque. But the downside is that venture capitalists have to bear a lot of risks directly or indirectly.
For starters, you’ll have to invest a very large amount of money to have any skin in the game. The company may not do well and other risks like negative publicity can affect your investment as well.
However, venture capital as an alternative investment is growing in popularity across India. Publicly available data indicates that there was a 55% increase year over year in venture capital investments in India in 2019.
5. Starting A Business
As far as alternative investments go, starting your own business may involve the most amount of patience, effort and capital. However, close to 25% of new businesses operate for 15+ years.
If you have a successful business that is on autopilot, you can earn monthly dividends, royalties, advisory fees, and more without having to break a sweat.
It is possible to generate passive income with alternative investments like P2P lending, consumer loans via merchants, real estate, venture capital, and starting your own business.
However, a single alternative investment may not be enough to generate sufficient passive income. This is where diversification becomes important.
Shriram is a Content Marketer at Cube Wealth, the Financial Freedom App with a smart Perfect Portfolio Planner. He has developed cutting edge IT products for over 2 years before turning to his passion for the written word. Shriram’s love for philosophy, product development, and empowering people through quality content is what got him to Cube Wealth.
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