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Do you know which is the best source of passive income?

Mar-30-2022


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The best source of passive income

Many of us strive to develop a passive income stream for a variety of reasons, including generating income for a living, diversifying our income, increasing our income, putting extra cash to good use, and a mix of all or some of the above based on our circumstances.
Regular income from a source other than employment or a full-time business is referred to as passive income.
There are many ways to produce passive income; let's look at the risks and benefits of a few popular passive income options.
 

Fixed deposit Fixed deposits, as the name implies, offer investors a steady fixed stream of income while posing little risks. Returns, on the other hand, are minimal, and they are vulnerable to reinvestment risks. Risks of interest rate change when the original fixed deposit matures are referred to as reinvestment risks.

Fixed deposits investments hold merit for the investors with a short investment horizon. As returns don't always keep up with inflation,  thereby resulting in a loss of value for investors with medium to long term investment horizon.

Rental Income – For many of us, rental income is another sought-after source of investing.  Investors earn a regular stream of rental income and also benefit from the appreciation of underlying assets over time. Further, the availability of tax breaks and easy availability of credit makes the asset class lucrative for investors.

While real estate investors benefit from asset appreciation, but real estate returns are also subject to market cycles. Further,  Rental returns, are often in the single digits (2-4 percent). As a result, returns are not assured, particularly for those who take out a loan to finance assets, usually costing twice the rate of rental returns.

Real estate investment requires a substantial upfront investment, which limits the accessibility of real estate as an asset class and/or the ability to diversify. For the few who own real estate portfolio, a large portfolio of wealth is tied up to asset class which is illiquid and inaccessible at the time of need.

Unorganized money lending  - Individuals lend to known persons in their network or area in unorganized money lending, which is one of the oldest sources of passive income. While the returns are good, the individual's capacity to recover advances is critical to the success of this source of income (this is not for everyone).

loans being made to known individuals, there is typically little or no paperwork is employed during the process. This limits the individual's ability to employ legal measures to recover the loan. Secondly, lenders do not have access to credit bureau reports, borrowers can go scout-free, posing a moral hazard in which borrowers can default on purpose, putting lender's money at risk.

Furthermore, unorganized lending is not completely passive because it necessitates the lender's continual time and effort in following up on payments and reinvesting the money recovered.

Online or offline Business – Establishing a new side business is frequently started as a hobby or as a lucrative source of income. The founder's managerial qualities and know-how are critical to the business's success. Given the success of the venture is linked to the skill of the individual, this is not a suggested source of passive income for everyone.

Given the limitation of existing sources of passive income, We believe India deserves to have a new asset class, which meets all the key expectations of passive investors. We at IndiaP2P are building this much-needed new asset class for passive investors which meets or exceeds all investment risk and return expectations of Investors. To know more set up a call with us by choosing a time of your convenience here

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We summarized overall assessment of various sources of passive income in below table.

 

IndiaP2P's investment products offer you flexible, high-returns.

 

Author: Ravinder Voomidisingh

 

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