Earn from these passive income sources

Your money can work for you around the clock, even while you sleep, if you know where to put it.

Most fully employed people do not have the time or energy to pursue side hustles to supplement their income. There are passive income ideas that require minimal effort and little time to set up.

Income streams like these are typically called passive income. Unlike active income, which is money earned from your regular work or business, passive income comes from a variety of owned assets and investments.

Among the passive income options available to Filipinos, the following instruments are worth exploring for their accessibility and the range of risk profiles they offer.

Types of passive income sources available

Here are examples of passive income sources and where to find them:

Time deposit accounts

A time deposit is a deposit held by a bank for a specified period (between one and 24 months) that pays higher interest than a regular savings account.

The time deposit interest rate varies by bank and tenor, ranging from 1.2% per year to as high as 7.5%. These accounts are also secure, as time deposit accounts are insured by the Philippine Deposit Insurance Corporation (PDIC) for up to PHP 1,000,000. Before committing funds to a time deposit, it also helps to first learn how to build an emergency fund, since early withdrawals typically incur pre-termination fees that could reduce your principal.

Unit investment trust funds and mutual funds

A less complex approach to investing in stocks and bonds is to invest in unit investment trust funds (UITFs) and mutual funds. These are pools of money from different investors that are invested in several other investment instruments, such as stocks and bonds, collectively called a fund. This diversification aims to reduce the risk that any single instrument will affect the entire fund's value. The key difference between the two is that UITFs are regulated by the Bangko Sentral ng Pilipinas, while mutual funds are regulated by the Securities and Exchange Commission. UITFs can be acquired through banks, while mutual funds can be acquired through accredited brokers.

One challenge with mutual funds is that you cannot control where the money goes; once you invest, the fund allocates funds across the instruments identified in the fund. UITFs and mutual funds are also subject to a 20% withholding tax.

Income from real estate rental

If you own a property, you may lease it out to earn rental income. There are responsibilities to consider: you may need to budget for maintenance and property upkeep, and managing tenant concerns takes time. If this becomes too demanding, a property manager can help handle operations.

Alternatively, you can purchase real estate investment trusts (REITs), a type of investment vehicle. They work similarly to UITFs and mutual funds, but REITs are invested exclusively in real estate properties, such as residential and commercial spaces. These are offered through accredited brokers for around PHP 5,000. Dividends are subject to the performance of the underlying properties and are also taxed.

Where to go from here

Passive income may be a worthwhile option if you want your assets to work for you over time. Align your targets with your financial goals, and keep in mind that most passive income streams depend on the performance of the underlying assets or companies.

The right approach will depend on your financial goals, risk tolerance, and available capital. The passive income options covered in this article offer a practical starting point for a range of risk profiles. Start with what you have and align your choices with your goals.

DISCLAIMER: This article is for general information purposes and does not constitute formal financial advice. Always do further research before making financial decisions and seek professional advice from a certified personal finance counselor.