What Are The Best Investments To Generate Passive Income?

[Shashank Bhaskar]

Passive income is defined as income derived from assets that do not require your active participation. Your money is put to work for you here. The idea of passive income has always appealed to people, and the economic downturn that followed the Covid-19 outbreak has only emphasised its value.

Passive income, in technical terms, is characterised as net rental income or income from your business interests in which the taxpayers are not materially involved. Passive income gets defined as any income not derived from a salary, a portfolio, or an investment. Wealth management managers do suggest ways to generate passive income.

Let us look at some options: 

Real Estate

Since real estate investment is a very active venture, it can fall under the category of semi-passive income. However, once you buy a home – generally with a 20% down payment — and plan to rent it out, it is all about keeping it in good shape. You may also hire a specialist property manager, who would typically charge 10% of your monthly salary. However, spotting a suitable investment is crucial since not all assets can yield a profit.

Another advantage in real estate investment is the ability to pay off debt. If you took out a loan to purchase the house, your tenants are paying a portion of the loan, and once the loan gets paid off, your property's income multiplies. Real estate plays an essential part in wealth management in India. So, always seek the advice of your wealth manager when you invest in real estate.

Index funds

Investing in an index fund is a passive way to invest in the stock market. If you invest in an index fund focused on the Nifty50, for example, you would be investing in the overall market without being directly involved in day-to-day trading. You may also invest in a sector-specific index fund. Gold, finance, and foreign markets, for example, are all viable choices.

Ensure your wealth account is in safe hands, given the state of uncertainty these days.

Dividend yield stocks

Dividend yield stocks are those that have a long history of paying dividends. These businesses have a track record of success and a consistent cash flow. Investing in dividend stocks will thus provide you with consistent income regardless of the market cycle.

The pandemic can serve as a wake-up call to better budgeting. Having a passive income stream, in addition to having a well-managed wealth management account, may be beneficial in the future because it can significantly simplify an investor's life.