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2 Nov 2020

6 Ways To Generate Monthly Passive Income From Investments

CoinSwitch Kuber

Back in the day, people used to work hard in one company for most of their life. And on retirement, they would be sent home with a box of sweets, some felicitation, and a monthly pension.

But, the time has changed swiftly, and the concept of pension is slowly diminishing. Even government jobs today do not guarantee a monthly income after retirement. 

In that case:

  • How are we supposed to retire or at least plan for it?
  • Should we continue working for money for the rest of our lives?

Well, NO!!

Most of us work for money, but the key to financial freedom is to have an alternative source of income.

Now the question is: where to look for an alternative source?  Well, I can help you here.

What Are Ways To Generate Monthly Passive Income From Investment?

Does the thought of doubling money excite you?

It does for most people in our country, and hence we tend to lean more towards growth investing. Growth investing means investing in an asset with anticipation of many fold returns on maturity. 

And fail to look at the other side of the spectrum, where we have Income investing. It generally means investing in assets that will earn you a regular periodical income as an alternative to the income earned from employment or business.

Though the returns may not be tremendous as it is in growth assets, it adds to your wealth in many other ways.  

Income vs Growth Investment
Description Income Growth
Returns low high
Risk moderate high
Type of return Real Virtual (till a profit is realized)
Consistency Regular Unpredictable
Reliable alternative income Yes No

 

 

 

 

 

 

 

Here is a list of some popular income investments available in the market:

#1. Mutual Fund Monthly Investment Scheme

It is easy to generate monthly income in mutual funds through schemes that are designed explicitly for risk-averse investors and retirees. Its approach is mainly oriented towards debt.

We can say that at least 70% – 80% of the fund is invested in debt funds and the rest towards stock funds. So the income generated from these plans is solely from interest and dividends. 

While evaluating the possibility of investing in this scheme, you need to consider the stocks and bonds ratio. You can choose based on your tolerance to risk and financial goals in mind. However, MIP does not warrant fixed income like other traditional money markets since returns are based on profits.

#2. Yield Farming [Cryptocurrencies]

When someone borrows a sum of money from you, it is a loan, and you earn interest on the amount lend.

Yield farming operates in a similar fashion but instead of cash; it involves lending cryptocurrency. And you get new types of digital coins in return as interest or fees. 

Okay, but how does it work?

Basically, you can lend digital coins such as bitcoins or tether through a decentralized app. These apps will lend those coins to borrowers for various purposes. 

The interest rate may vary depending on the demand, and it also involves risks like liquidation risk, high gas fees etc.

What’s new about this concept is that this process follows the old borrowing-lending processes but eliminates middlemen such as banks or other financial institutions. 

Though CoinSwitch Kuber does not support yield farming, we are currently working consistently to bring it to you very soon.

Buy Crypto With Just ₹100

#3. Direct Stocks

If you are comfortable with investing in the stocks directly, then, monthly income from the stock market is what you should look for. 

Individual companies listed in the stock exchange that are large and well established often pay periodical dividends.

Here is a little tip: Companies who fall under energy, financial, IT, and government pay out high dividends usually. 

For example, Infosys paid dividends of 240% on face value recently and has a track record of consistent dividend payments for the past 5 years. 

Just like mutual fund income schemes, dividend stocks also do not guarantee a fixed income. However, plan and invest wisely; you may have the advantage of earning a regular income and a significant increase in your stock price. 

#4. Bonds [Non-cumulative]

Non-cumulative bonds are another option to invest for regular income.

Non-cumulative means that the interest does not accumulate over time; instead, it is paid to the investors periodically. Such intervals can vary as monthly, quarterly, bi-annually, annually, etc., depending on the type of bonds.

The government generally issues high-quality bonds that often yields an interest higher than those offered in the money markets. 

The minimum investment in such bonds usually starts from ₹1000 and be furthered increased in multiples of ₹1000.

#5. Real Estate

This is another popular option sought by the majority of the people as an alternative income source.

But here’s the thing while investment in properties ensures regular monthly income, it requires a lumpsum amount as an upfront investment.

The property’s maintenance cost further cuts down your income, and after the tax deductions, the real estate’s revenue could factor to only 2.5% of the investment.

But it is not all that gloomy a well-located property’s value is likely to skyrocket over time. However this requires you to wait for an extended period to reap the returns, so do your own research thoroughly, if you decide to go this way.

#6. Money Markets

Money market investments such as deposits and savings schemes are a safe bet in the market. It ensures and a steady stream of monthly income.

All deposits made with commercial or co-operative banks are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). Meaning your money will be returned to you even if your bank went bankrupt but only up to 5 lacs per account on a single individual.

Fixed deposits, corporate deposits, Post office monthly investment schemes, other savings schemes are a few options available in the money markets. 

But note, despite the guarantee of money, the income generated is low compared to other options like stocks and yield farming.

Now, that you know all the ways through which you can generate passive income, it is important to know that you don’t get to keep all the money earned through these mediums with yourself alone.

Want to know more investment options, read our article on best investment strategies

Yes, you get that right! We have to pay taxes based on how much is our investment income.

How is income from investments taxed?

The first step here to save taxes and efficiently invest your money is to know your tax slab and then allocate your money in necessary funds.

However, the tax that you pay on your investments varies depending on the time duration for which you have been invested in an asset. Generally, short term investments are taxed at a higher rate than long term investments.

For e.g., Short term capital gains on equity mutual funds are taxed at the rate of 15% +4%cess while long term capital gains in the same fund are taxed at the rate of 10% + 4% cess

And similarly, different investing means have varied tax liability which you need to take into account.

Bottom Line

Now, it is up to you to decide which investment option suits you, but before jumping to a conclusion, my only suggestion would be to weigh factors like your risk tolerance, goals, and investing capacity.

And frankly speaking, In comparison to growth investing, income investing yields lesser returns with a regular income. Hence, the size of the portfolio is vital. The bigger your portfolio, the more revenue you generate.

If you have considered the above factors:

 ***Drumroll*** 

You are now ready to begin your journey towards financial freedom and start investing to generated monthly returns.

[su_note] KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing. [/su_note]

Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.

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CoinSwitch Kuber

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