5 ways to generate extra income to become financially independent

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When it comes to helping you satisfy your financial goals, an additional stream of income can go a long way. Here are 5 different ways through which you can earn some extra income.

1. Deposits

A great simple way to earn passive income with almost no effort is through deposits. There are many options to choose from in this category. You have bank deposits like Recurring Deposits (RDs) and Fixed Deposits (FDs). The interest rates that banks offer for RDs and FDs average between 4.75% to 7.5%, depending on the bank.

Then, there are corporate FDs too, which often give higher rates of interest. Government deposit schemes like PPF, Post Office Schemes, etc., are another option. They are generally safer because of the government backing, and they even offer higher interest rates.

So, by investing in deposits, you can ensure that you get a regular interest payout each month, each quarter, or even each year. It all depends on your needs and your preferences.

2. Alternative fixed income investments - NCDs

Deposits are not the only fixed income investment options you have in the market. There are non-convertible debentures (NCDs), which regularly pay out interest to investors. NCDs are issued to the public through a process similar to IPOs. Once you purchase these instruments, they pay out interest at a fixed rate. The interest rate is often higher than bank FDs.

You can choose to receive periodic interest payouts. The frequency can be monthly, quarterly, half-yearly or annually. NCD issues happen frequently in the Indian financial markets. For instance, in the month of April 2021 alone, companies like Edelweiss Finance, Muthoot Fincorp and India Grid Trust issued NCDs.

Another popular fixed income investment option is the Sovereign Gold Bond (SGB) Scheme. These bonds have a maturity period of 8 years, and they offer interest at 2.5% per annum, paid out semi-annually.

3. Income plans

Insurance plans can also help take care of your need for some additional income. Known as income plans, these insurance policies not only offer a life cover to the policyholder, but they also pay out income periodically.

For instance, Monthly Income Plans (MIPs) are a popular subcategory of income plans. As the name indicates, they pay out income to the policyholder on a monthly basis. This payout generally starts after the premium payment term, and it continues for the rest of the tenure of the plan.

For instance, say you purchased a Monthly Income Plan at the age of 30. The plan has a tenure of 30 years; so its life cover is valid till you attain 60 years of age. You pay premiums till the age of 45, and thereafter, till you attain 60 years of age, you will receive monthly income payouts--an additional stream of income that can add to your salary or main income!

4. Dividends from Stocks

Are you a risk-taking investor? Then, investing in dividend stocks is a great way to earn steady and consistent income. Dividend stocks are nothing but stocks of companies that regularly pay out dividends to shareholders. These dividends are parts of the profit a company earns. Some companies pay dividends each quarter, while most pay dividends each year.

For example, recently, on April 29, 2021, Hindustan Unilever1 announced a dividend of Rs. 17 per share. So, if you held around 1,000 shares of HUL, you would have received Rs. 17,000. And suppose that you had a portfolio of such stocks that regularly paid dividends. Then, you would receive many dividend payouts over the course of each year.

You can also earn additional dividend income through your mutual fund investments. Specifically, you need to choose the dividend option of mutual funds. These are MFs that distribute their dividends instead of reinvesting them.

5. Rental income

Already own a real estate property like a house, a piece of land, or a commercial space? If it’s lying vacant, you could always rent it out for some extra income. Renting out your property is one of the easiest ways to generate passive income. And it requires very little effort.

For instance, let’s assume that you possess a 2-bedroom house in Nagpur, but you live in a different house, or even a different city. In that case, you can choose to rent out your house in Nagpur. That will give you a steady extra income on the side. Depending on your locality, you can earn around Rs. 7,000 to Rs. 15,000 per month, on average.

ADV/8/21-22/814

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