Entrepreneurs are now opening up to the idea of earning How to make Passive Income in India besides their business given the uncertainty of income from their business in the last 5 years. Smart business-owners prefer having a clear distinction between their Corporate Finance and Personal Finance. Those who mix these two mostly end up having troubles when the business goes down because everything they own or have depends on the business and all their profits after being used up for expenses goes in the business which leaves no room for other funds such as emergency funds or goal-specific funds. A business owner must understand that the basic reason why he is doing the business is to take good care of his/her loved ones and mixing personal finances with the corporate ones really puts him/her into a vulnerable financial position. Business-owners too, do not have the time to devote in learning how to make Passive Income In India, their focus is mostly on learning which helps in their business growth. The easiest and the smartest way for them to make Passive income is to have a diverse yet balanced portfolio.
Business-owners should have their own personal portfolio like any other individual entirely different from their business entity. The portfolio should include all the assets which suit him personally (according to his personal goals and risk tolerance) and not at all dependent on their business. Any drawing from this portfolio made for the business (although not recommended) should be fulfilled as soon as the revenue comes. If possible, they should also not try to touch personal finances for business needs and use other sources (like loans if needed).
Here is how a business owner can diversify their personal wealth and start their passive income journey.
1. Debt Investments
This is a great asset class for having stable and nearly sure passive income for one’s personal goals. Entrepreneurs are mostly tempted towards PPF (Public Provident Fund) because the returns are tax-free. They have good tax-planning and thus PPF comes out to be a better option for them. But this is only for very long term, they should invest in shorter term bonds as well (corporate or govt.) in their portfolio according to their personal goals and needs.
2. Equity Investments
Now, this is something that is very interesting because of the mindset Business-owners have. They think that investing in equity is investing in somebody’s business (which is true) so they prefer investing in their own business which might sound fair to many of you reading it. Sadly, it is not a correct way to go around, one must remember the fact that personal finances and corporate finances are two different things. Even when you have a business, you can still as an individual invest in good stocks and indexes in order to get high returns and create a larger corpus.
Every household is familiar with this Asset as it is a part of our tradition and culture in its physical form such as coins, jewellery etc. Even though we have liked it in physical form since forever, we need to understand that owning Gold in digital form is much more profitable because of various reasons. Gold in physical form can be stolen, goes through wear and tear, depreciates more than the digital gold whereas the digital gold is something that will never disappoint you and will especially come to rescue in the times of crisis (when the market is down). Please remember this does not concern your business and thus any return from the assets should either be used up or be re-invested in the portfolio and not in your business.
Business-owners have a different outlook towards insurance as compared to others. Since they understand the importance of tax-planning, they only wish to take investment-based insurances which turns out to be a really poor financial decision. Insurance is just insurance, not an investment, when you mix the two, you end up not getting either of the benefits.
This is one of the most preferred asset classes for all kinds of business-owners especially when the real estate market is doing good. They usually do not even hesitate in taking out a chunk out of the business when they find a suitable property, which again is not a healthy way to do it. Segregation of both the finances is very important. The money from business should not be used up to get personal returns. If there is less room for real estate in your personal finance then one can invest in REITs as well.
Business-owners even though are very active in managing finances might commit the grave mistake of mixing up personal and corporate finances. It is important to learn how to make passive income in India, especially for Business-owners who already are well aware of the market (well, mostly) and also are careful when it comes to tax-planning. Eventually the goal is to not be dependent on the business for income, while use it as a tool to pursue passion. The livelihood of the business owner should be dependent on Passive income from wealth management which can run without needing their time, effort or energy.
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