Investing is a major and sure source of passive income, but wrong investments lead to huge losses as well. Investing in stocks offers the creation of passive income via high dividends, but should you invest in such stocks to create passive income?
The dividend is a distribution of retained profit that the company (which is safe according to investors) does not need. Rather than keeping it within the company as a reserve, they distribute it amongst their investors. These are majorly PSUs (partially owned by the government) with a return of about 4-5% averaged.
But it is also important to understand why one should not invest in such companies. Because no doubt the return of 4-5% seems too good to be true but these PSUs have little scope of growth in the future. They have reached a level of saturation in their business where they can generate money but fail to re-invest it into their own business for future growth prospects.
In addition, in the pursuit of creating another source of Passive Income, there is always a high possibility of loss when one invests in stocks because of many unforeseen circumstances, like stock value going down by 15%. Although it did give you a fixed dividend return of 5%, eventually you can lose a major part of your hard-earned money. No matter even if it’s any other company or PSU, there is never a guarantee of safety in stock markets as they are very much affected by the factors.
Hence, in order to have a secured source of passive income, one should look for investing in the debt markets, REITs or Invits as they are the ideal choice. Finally, someone looking for other sources of Passive Income can also invest in structured products on smallcase or PMS or AIF through which you can invest in stocks. TrendlineZ is one such company that is listed on smallcase and has a AskTheWiseGuy Passive Fund. This can be a source of more stable income as well as growth in the portfolio.