How to Make Extra Money in India from Financial Products

In this article I will talk about How to Make Extra Money in India from financial products.

Most of us work in some sort of regular job where we get monthly salaries. Every month we either get a cheque or the amount is deposited directly to our bank accounts. Yet sometimes we wonder, would it not be great if I could make some extra money? Would it not be wonderful if I had some regular extra income? Is there some way in which I can make extra money in India other than salary?

If these are your questions, I will try to answer some of those. I myself use many of these techniques to supplement my monthly salary. You may find some of these methods very helpful to make extra regular money in India apart from salary.

#1 Interest Income on Bank Monthly Income Certificate

Most people do not know what to do with their salaries. They either spend it (mostly on useless things), or they keep it in their Savings Account or worse still they buy some terrible LIC Endowment policy.

If you have some sizable amount, you can go to any Nationalized or Private Bank and buy a Monthly Income Certificate.

Definition of Bank Monthly Income Certificate

Moneys invested in this type of deposit (Quarterly/Monthly Income Certificate) provide fixed monthly income by way of interest to the depositor for a specified period leaving the deposit amount intact. The Quarterly/ monthly interest will be credited to the savings or current account and monthly interest may be credited in recurring deposit account of the depositor according to the instructions. Source.

Illustration

If you invest Rs 9 lakhs (Rs 900,000) in an MIC at 8% for 5 years, you will get around Rs 6000 per month interest income for the next 5 years.

#2 Interest Income on Post Office Monhly Income Scheme

A Post Office Monthly Income scheme is the same as MIC in terms of structure, except that it is offered by Post Office. It is a 100% safe product offered by Government of India.

And the best part it, the interest rates are generally higher than that of a bank fixed deposit.

I have talked about POMIS earlier:
Introduction to Post Office Monthly Income Scheme
Taxation of Post Office Monthly Income Scheme

#3 Interest Income on Corporate Bonds (NCD)/ Fixed Deposits

Corporate NCD (non-convertible debenture)/ fixed deposits are debt products offered by companies. They have the same structure as Monthly Income Certificates and Post Office Monthly income Schemes.

The interest rates are slightly higher than bank FD’s. But risk factor is also higher. And generally they are offered for shorter duration like 1 year to 3 years.

Many companies like Shriram Transport, Srei Infrastructure offer NCD’s from time to time.

Illustration

If you invest Rs 12 lakhs (Rs 1,200,000) in an NCD at 10% for 3 years, you will get around Rs 10,000 per month interest income for the next 3 years.

#4 Interest Income on Tax Free Bonds

All the income you make in Options 1,2 and 3 above are taxable. If you want tax free interest, you could invest in Tax Free bonds, offered from time to time by government affiliated bodies like Power Finance Corporation, HUDCO etc.

They generally offer lower rates and are have a tenor of 15 to 20 years. Interest is paid once a year. Being NCDs they can be theoretically be traded in the secondary market, although the liquidity is generally low.

#5 Dividend Income on Equity Shares

Investing in shares is another way of saying that you have partial ownership of the company. What this means is, if a company makes a profit you have ownership of a percentage of the company’s profit.

I have talked in detail about dividend investing as a strategy here.

What are dividends?

A company is in the business of making profits. A percentage of the profits is given back to the owners (shareholders) and this is known as dividend. The remaining amount stays in the company and may be used for increasing business.

Illustration

You own 10% of a company through shares. Company makes a profit of Rs 10 laks for the year. The Management decides to gives Rs 2 lakhs to shareholders and re-invest the balance Rs 8 lakhs in the business.

The Rs 2 lakhs is known as dividend. Since you own 10% of the company, you will get Rs 20,000 as dividend.

Dividend investing as a strategy becomes fruitful only after 7 years or so when the yield on cost starts making sense.

The good news – as of today dividend income is tax free in the hands of investors.

#6 Dividend Income on Mutual Funds

This is the same as above – except that the dividend comes from a mutual fund.

How to Make Extra Money in India from Financial Products – Summary

  • Interest Income from Bank Monthly Income Certificate.
  • Interest Income on Post Office Monthly Income Scheme.
  • Interest Income on NCD/ FD.
  • Interest Income on Tax Free Bonds.
  • Dividend Income on Equity Shares.
  • Dividend Income on Mutual Funds.

That’s it. Thank you for reading How to Make Extra Money in India from Financial Products.

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Reference

A Few Last Words

Before making any investment decision, please contact your financial adviser. I have provided this article for educational purpose only.

I hope you found this article on How to Make Extra Money in India from Financial Products. If you have something to add please leave a comment in the post. Please feel free to contact me.

Subhodeep Mukhopadhyay

I am a Management Consultant in the Education Sector. In my previous corporate career, I have worked in Banking, Private Equity and Software industry. I am an MBA in Finance/ Computer Engineer and enjoy doing equity research and financial analysis in my free time.

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