Can You Generate Passive Income With Alternative Investments?
Read this blog to know if alternative investments like P2P lending, Real estate, Venture capital, etc. can be used to generate passive income in India.
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.
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.
Traditional Investment
Alternative Investment
Mutual funds
P2P lending
Stocks
Consumer loans via merchants
NPS
Real estate
Bank fixed deposit
Venture capital
Annuity plans
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.
Best Passive Income Generating Alternative Investments
1. Peer To Peer Lending
By becoming a lender on a P2P platform like Faircent, you’ll be able to lend directly to thoroughly vetted borrowers and create a passive income stream . P2P platforms negate the need for a traditional intermediary like banks.
Historical data suggests that P2P lending with an RBI certified P2P NBFC like Faircent can earn you an interest of 12-14%. The rate of interest is based on the holding period (loan duration).
The minimum investment amount for P2P with Faircent on Cube is ₹30,000. RBI permits a maximum investment of ₹50,00,000 per PAN card.
This recurring monthly interest can help pay bills and for small indulgences. Cube helps you distribute the risk across multiple borrowers.
P2P lending is regulated by RBI and Faircent thoroughly vets the borrowers on its platform. Faircent starts earning only after you start earning.
An RBI certified P2P NBFC platform like LiquiLoans allows you to become a lender and provide loans to top-end consumers with a high CIBIL score.
Based on historical data, you can earn between 8-9.5% based on the holding period (loan duration). This is better than a bank savings account or fixed deposits.
The minimum investment amount on Cube is ₹50,000 and the maximum amount you can lend per PAN card as per RBI guidelines is ₹50,00,000.
The Cube Wealth app gives you access to risk-based lending options. Join Cube For Free to know more about consumer loans via merchants with LiquiLoans.
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
Mumbai
Hyderabad
Average Monthly Rent
₹38,000
₹11,000
Total Returns (20 years)
₹91,20,000
₹26,40,000
Average Monthly EMI
₹99,838
₹49,919
Total Loan Amount Paid (20 years)
₹2,39,61,117
₹1,19,80,559
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.
FAQs
1. Do alternative investments offer tax advantages for generating passive income?
Ans. Some alternative investments may offer tax advantages, such as depreciation benefits for real estate or tax-deferral options for certain retirement accounts. Consult with a tax professional for personalized guidance.
2. How do I manage the passive income generated from alternative investments?
Ans. Managing passive income from alternative investments involves tracking earnings, assessing tax implications, and reinvesting or using the income according to your financial goals.
3. Can I diversify my passive income sources with alternative investments?
Ans. Yes, diversification is key to managing risk. You can diversify your passive income sources by investing in a mix of traditional and alternative assets.
4. Is professional advice necessary when considering alternative investments for passive income?
Ans. While not mandatory, seeking professional advice, such as from a financial advisor or real estate expert, can provide valuable insights and help you make informed decisions when exploring alternative investments for passive income.
Conclusion
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.
on stock picking, poring over excel sheets, financial news, analyzing market trends, tracking the Sensex, researching company fundamentals, comparing mutual funds, reading financial reports, trying to predict the future & losing your sanity!
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