Building Passive Income sources

Relying on salary income alone is very risky- we may lose jobs at any moment. Lots of young professionals get into spending spree once they get a job and fall into endless EMI trap buying expensive phones, bags and things they don't need or can't really afford.

A wise individual would start planning for passive income- income that keeps coming in even if you sit idle and do nothing. It is not impossible to generate a few sources of passive income with your salary income over a period of time, so that there is a cushion/backup during your old age or in case you lose your job.

Below are some of the most popular and practical ways to generate passive income. 

#1 High Dividend Yielding stocks

Several stocks are known to give good dividends- 8% or more every year. Open Demat account, put a portion of your income into these stocks and enjoy regular dividend income every quarter. [Here is a list]

Note: Dividend will be treated as income and will be taxed as per income tax slabs. If you do not need money right away and wish to skip 30% income tax, invest in Mutual funds and let the corpus accumulate over the years. Mutual fund gains are taxed as capital gain, with 1.25 Lakh exempted every year for LTCG, so towards your retirement you can start redeeming smaller amounts and move the money to direct equity.

#2 Write a book or get a patent: Loyalty income

Once you build some expertise in any area, see if you can write a few books. Loyalty income will keep coming for each copy sold. Even if few hundred copies get sold per month, a few thousand rupees will keep coming in

Applying for patent is another idea- if companies want to use your patent, they will pay loyalty

#3 Real Estate: Rental income

A bit of real estate like housing, shops that you can rent out will generate stable income and will have physical assets. 

#4 Pension funds

Pension funds by mutual fund companies and schemes like NPS are not really effective compared to direct investment in stocks or MF, but many people prefer them due to following reasons

• Less headache- don't have to directly manage shares and mutual funds
• Some tax benefits (like Employer contribution to NPS is tax exempted, some redemption are tax free etc)
• Guaranteed income, even if lesser in amount is more attractive to few than a risky but potentially higher returns direct investment 
• Intense marketing pressure from insurance agents, relatives, banks to invest in schemes that gets them commission 

I have explained in this post why Pension schemes are a scam.  

#4 Second source of income

You can try build a second source of income without conflicting with your main job. You can't moonlight (take second job or incoming using same skills for which your company is paying you) but unrelated sources of income is usually ok.

Examples: 

• Taking up consulting assignments post retirement
• Taking up freelancing projects in areas not related to your salaried job
• Generate training material on Udemy and earn when people buy your course
• Try a homestay or such tourism related business 
• Pursue some passions seriously, which may bring paid assignments or revenue (like Photography, standup comedy, video editing etc)

Let me know what you think or if you have more ideas for passive income.