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    Passive Income Vs Portfolio Income Debate – Key Things You Must Know!

    • 5 min read
    • Last Modified Date: October 26, 2023
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    A massive debate exists between the best source of income among active, passive, and portfolio incomes. Most people have an active source of employment or business which is usually their primary source of income. However, to achieve wealth, just relying on active income won’t work. Passive Income is currently the most hyped word by financial stalwarts like Warren Buffet advocating in favor of it. Along with passive income, there exists another type of income called Portfolio Income, which is generally similar to passive income but doesn’t require initial time efforts. Thus, the question arises as to which is the best between ‘Portfolio Income’ and ‘Passive Income’ to achieve financial freedom. In this article, we aim to dissect portfolio income and passive income in detail, and which one fares better than the other.

    What is Portfolio Income

    A portfolio income is an income earned through interests, dividends, and capital gains in a portfolio of investments. Commonly, portfolio income avenues are merged into passive investing options. But the slight difference that exists in portfolio income is that the investor need not put in any initial efforts of the time. Investing in stocks, ETFs, Mutual Funds of dividend-paying companies can be a great stream of portfolio income.

    The striking feature of portfolio income is that portfolio investment options are easily accessible to all kinds of investors and offer equal opportunities for all. Moreover, with the rise of investment management companies, people having little knowledge of the stock market and other portfolio income avenues can outsource stock selection to experts.

    Suggested: Considering Real Estate Investment? Here Are Approaches To Develop A Strong Property Portfolio

    Sources of Portfolio Income

    • Stocks 

    The Stock Market is a great way of earning portfolio income through dividends and capital gains. A diversified stock portfolio can earn you better returns.

    • Mutual Funds 

    Mutual Funds offer a wide range of open-ended and close-ended options to invest in a variety of assets like stocks, debt, money market, and so on.

    • Exchange-Traded Funds 

    Exchange-traded funds are mutual funds that track an existing index like Sensex or Nifty or any other index to earn returns mimicking that of the underlying index.

    • Bonds 

    Government Bonds, RBI bonds, or Corporate bonds act as a portfolio source of income and the coupon interest serves as portfolio income.

    • REITs

    Real Estate Investment Trusts are a great source of earning minimum dividends of 90% and above. REIT Companies invest in profitable rent-yielding properties and pass the returns to the shareholders.

    • Peer-to-peer lending

    Peer-to-peer lending generates interest income that can be a good source of earning.

    As we took a deeper look at portfolio income, certain sources might resemble passive income sources. Most people refer to portfolio income as passive income and there is a very slight difference between them. Let’s find out passive income in detail.

    What is Passive Income

    Passive income is earned through any activity which may require an initial investment of time and money for the creation of sustainable long-term passive cash flows. Long-term passive income can be earned through Rental properties, Real Estate Crowdfunding, Youtube/Blog income, and so on.

    Passive income is essential in building alternate streams of income that can help in building wealth for the long term. Sometimes, passive income may not be completely passive, as it may demand the attention of investors for the initial setup and maintenance.

    Why Do You Need Passive Income?

    If you’re interested in building wealth, having passive income is an important part of the equation. You need to be able to take care of yourself and your family without needing to rely on a job. This can be done by creating an income stream that allows you to work fewer hours or not work at all (or both). Passive income will also help with retirement planning as well as meeting financial goals like paying off student loans or buying a house (or multiple houses).

    Passive income is any form of recurring income that you earn without requiring you to work for it. This can be from a business that you own or from investments like real estate, stocks, bonds, and more.

    Does passive income mean risk?

    If you wish to stay financially stable, you need to increase your passive income without getting involved in any kind of risk.

    If you want to increase your income, it is important that you invest in assets that will generate passive income. These include commercial and residential real estate property, stocks and bonds as well as other alternative investments such as mutual funds or business ideas that can be developed into companies with employees working for them who will pay themselves salaries based on their sales performance.

    Sources of Passive Income

    • Real Estate Rental Properties

    Real estate properties generate passive cash flows through rental yields. The landlord needs to manage the tenants and maintenance of the property or he can outsource it to the property managers. Real estate property is one of the best sources of earning regular rent as well as capital appreciation over the long term with an average of 12 to 15% returns per annum.

    • Real Estate Crowdfunding

    Real estate crowdfunding offers passive cash flows at regular intervals in the form of interest payments from the developer of the project.

    • Youtube / Blog Income

    In today’s times, the pandemic has given rise to many youtube celebrities and bloggers with passive income through such mediums as their greatest wealth.

    • Affiliate Marketing

    Affiliate marketing involves promoting third-party products on our websites and channels and earning a percentage share of the product price. Affiliate marketing requires initial effort in growing a trustworthy audience.

    Understanding both passive and portfolio income in depth gives us more clarity about the investment options available in the market. Here is a short comparison between them:

    Portfolio Vs. Passive Debate

    ComparisonPortfolio IncomePassive Income
    Initial InvestmentCapital investment is required to invest in qualified portfolio stocks.Capital investment along with time and skills are required to set up a passive source of income.
    ReturnsThe returns or income from portfolio sources are in the form of

     

    • Interests
    • Dividends
    • Capital Gains
    The returns from passive sources are in the form of

     

    • Rent / Lease
    • Passive business profits
    • Ad income
    • Royalties
    • Interests
    TaxabilityA) Interest & Dividends – Taxed under Income from Other Sources at normal slab rates

     

    B) Capital Gains – Taxed under Capital Gains Section with special rates

    • Long Term Capital Gain – 10%
    • Short Term Capital Gain – 15%
    All kinds of passive income are taxed as per normal slab rates and can fall under different heads like Income from House Property, Profits, and Gains from Business, and Income from Other Sources.

    Portfolio Income and Passive Income both are great sources of investment to build long-term wealth. The only differentiating factor is whether an investor can put initial time and patience to build a sustainable passive source of income. So, the following is the quick guide for your suitability of the best source of income for you.

    The main difference between passive and portfolio income is that passive income is generally considered more stable because it’s derived from something more tangible: real estate (if you own one), a business (if you own one), royalties (if you write songs), etc. Portfolio income is typically more volatile since it’s derived from investments based on speculation—you might make money one month but lose it another month due to market fluctuations.

    The Best Option For You –

    When it comes to passive income, you can earn money without having to work on your own. While this is a great thing, it also means that there are no guarantees as to how much you’ll earn and when. If your investments lose value, then so will all of the money tied up in that portfolio.

    On the other hand, if your portfolio grows significantly over time (and we’ve seen this happen many times), then all of those profits will be yours – even if none of them were earned through investing!

    The goal of passive income is to earn as much money as possible without having to work for it. This can be done through a variety of different investments, but the most common way is through real estate and rental properties. Whether you’re buying up homes or renting them out, your goal is always to make sure that these properties are generating enough income in order for them to pay for themselves over time.

    Best Investment – Portfolio Income Sources

    Team A – Less Time, Low Additional Skills 

    You fit into this team if your active job consumes a lot of your time and you don’t have any additional skill set other than your job which is required to create passive income sources.

    Best Investment – Passive Income Sources

    Team B – More Time, More Additional Skills

    You fit into this team if your inherent skills and talent can fetch you passive earning opportunities. You can be great at managing properties or building passive businesses.

    One can always invest in a combination of portfolio and passive income for faster compounding of wealth and achieving financial freedom early. Thus, investors need to carefully plan their investment strategies before diving into any option.

    Assetmonk is a smart real estate investment platform offering multiple real estate options ranging from Growth, Growth Plus, and Yield models with a maximum IRR of 21% per annum. To get started in the world of real estate, visit our website today!

    Portfolio Income Vs Passive Income FAQ’s:

    Is portfolio income considered passive income?

    Yes, some analysts and financial advisors regard portfolio income as passive income due to no major difference between them.

    What are three ways of portfolio income?

    The three ways you can earn portfolio income is through –

    1. Interests
    2. Dividends
    3. Capital Gains

    What are the sources of Passive income?

    Some of the popular sources of passive income are real estate rental properties, real estate crowdfunding, passive business income, youtube/blog income, royalties and so on.

    What is an example of portfolio income?

    The three ways you can earn portfolio income is through –

    1. Interests
    2. Dividends
    3. Capital Gains

    How can I make passive income in 2021?

    Real estate is one of the best sources of passive income in 2021 with great market conditions for real estate investments.

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