Here's how you can make passive income!

Inflation is rising and expenses are so high that often salary falls short. For many people, it’s a hand-to-mouth situation, that is, whatever salary gets credited, gets spent entirely.

Therefore, it’s important to have a source of income other than your job. Passive income can be beneficial in such situations. Passive income is income that doesn’t require much effort to earn and manage. However, you do need money to generate passive income.

As money begets money, it’s advisable to build up some capital before considering passive income options. Invest it wisely. Only then can you achieve passive income.

What’s the source of passive income?

Let’s find out potential sources of passive income. Talking about three sources that can help you earn passive income.

Dividend Stocks

Investing in stocks can be a reliable way to earn passive income.  Especially when you invest in stocks that pay dividends regularly. Dividend stocks are shares of companies that distribute a portion of their profits regularly to shareholders, known as dividends. Investing in dividend-paying stocks can provide you with a regular income, which you can reinvest or use to meet your expenses.

But before choosing dividend stocks, do your own research. Select companies that have a history of consistently paying good dividends. Pay attention to the company’s financial health and valuation during this process. If the company is well-valued and has strong fundamentals, the chances of receiving good dividends are higher.

Also, choose stocks that have potential for price appreciation alongside providing good dividends.  Dividends are usually issued quarterly but can also be issued monthly or annually. The amount of dividend is determined by the company’s board of directors.

Peer-to-peer lending

This is a relatively new investment option in India.  On a P2P lending platform, you can lend your money to individuals or businesses and earn interest. In essence, you earn income as interest on the loans you provide, which can offer higher returns compared to FDs or savings accounts.

However, there are risks such as loan defaults and regulatory challenges associated with P2P lending. Therefore, research these aspects thoroughly before investing.  Make an informed decision after considering these factors.

Fixed Deposits

These can also be a good source of passive income. However, for this you’ll need to choose a Monthly Income Plan (MIP) scheme within FDs. This scheme is suitable for those who want an additional income source every month. In this scheme, you receive interest on your deposit every month.

You can choose the payment frequency as quarterly, half-yearly, or annually. You can opt for this type of FD for a period ranging from 1 to 5 years, and interest is accrued similar to a normal FD. However, the drawback is that your principal remains fixed.