Follow a balanced approach

Don't keep investments in avenues that barely earn anything. You can balance liquidity with instruments that give a higher return.

All of us wish to have an additional or other source of income. The need has become more important with an increase in standard of living and rising costs. The question is how to earn one. While, adding to our already existing income may not always be possible, we could increase our income by putting our idle assets to use.

TRACK FUNDS IN BANK ACCOUNTS
All of us maintain certain funds in cash in our savings bank accounts for contingency requirements. It is only recently, that Reserve Bank of India (RBI) has allowed deregulation of savings bank interest rates. So banks that earlier gave a maximum of four per cent to their saving bank account customers are now free to offer more. Yet, so far, only a few banks - YES Bank, Kotak Mahindra Bank and IndusInd Bank have started offering higher savings bank rates. For most part, the rate of interest one earns on his bank account is still low. When we consider the current inflation rate of 12 per cent, we realise, that keeping our money idle or in a savings account, we lose. Instead, deploy these in a short-term fixed deposit or a liquid fund. These instruments are liquid and also provide a good return.
 

OPTIMISING RETURNS

* Earn additional income by putting idle assets to use 

* Money lying idle in our savings bank account may be earning low interest. Deploy the idle funds in a short-term fixed deposits or a liquid fund instead

* Gold in the form of coins, bars or as units have good liquidity. Since gold is well accepted as collateral, it can help one raise a loan in an emergency

* Real estate investments not only give rental income, but also provide good capital appreciation

* While trying to earn additional income, always ensure safety of the capital invested

Sweep-in account: Many banks offer a sweep-in account for savings account holders. A customer specifies the amount he wants kept in his savings account at any time or agrees to a minimum as decided by the bank for this facility. Any amount above this specified limit is automatically transferred to the customer’s fixed deposit account, which is also attached to the savings account. Thus, the money does not remain idle in this arrangement and earns a higher rate of return for the customer. Whenever the latter wants to withdraw a higher amount than that in the savings account, the excess is reverse-swept from his fixed deposit. Interest rates offered on auto sweep deposits and traditional fixed deposits are almost the same.Banks give around 7-8 per cent on their short-term fixed deposits

Liquid funds: Liquid funds are ultra short-term debt funds.They invest in money market instruments such as certificates of deposit, commercial paper or treasury bills, either on an overnight basis or for a very short term, such as 10 days to a month. Liquid funds have no entry and exit loads, in most cases. These funds can be used to park cash for a short term. Compared to savings accounts, where the returns are as low as four per cent per annum, the historical returns on liquid funds have been as high as seven-eight per cent per annum (pre-tax). Liquidation is also easy.

Renting out property: A trend has set in for people to own more than one home. Also, due to displacement on account of profession or employment, the individual may buy or rent another house for himself. In such cases, you may be keeping your existing house vacant or unoccupied. It makes sense to rent out the property owned by you, as you can earn rental income. Before you do so, note these points:

* Check credibility of the proposed tenant, by asking him to furnish permanent address details and references;

* It is desirable to have an agreement with a lock-in or notice period. Within this period, the tenant will not have the right to terminate the lease. If he does, he will be legally obliged to pay lease rent for such period;

* In case of a long-term leave and licence, ensure you include an escalation clause for increase in rent after a defined period.

Real estate is one investment that not only gives rental income but also provides good capital appreciation. Real estate prices across India have increased by 50-60 per cent in the past two to three years.

Investing in gold: Investing in gold is also an attractive option. Gold in the form of coins or bars or as units have good liquidity. Since gold is well accepted as collateral for the purpose of loan, in case of liquidity needs, you can raise a loan quickly. The only document required for a gold loan is proof of personal identification. Thus, in case of a medical emergency, one can get the benefit of a hassle-free and expeditious disbursement. The loan rates are hugely dependent on the safety margin you leave for the lender. Depending on net weight and purity of the gold, interest rates vary from 10 to 17 per cent.

Cautions: While trying to earn additional income, always look at safety of the capital invested. Also to be taken care of is the tax element. The income earned will be chargeable to tax and the reader will have to pay the tax and provide information whilst filing the tax return.

The writer is a freelancer