Right now, ‘passive income’ is all the rage. It’s often talked about in relation to side hustles, like renting out spare space, but it could also include an investment pot that generates income with limited day-to-day effort.
Becoming a YouTuber or joining the TikTok algorithm royalty club aren’t activities on my to-do list. But investing for income can be a more realistic route for those with capital to put to work. It still carries risk, and the income is not guaranteed, but it can be less time-consuming than other side hustles. And it doesn’t require a camera.
This article isn’t personal advice. If you’re not sure that an investment is right for you, ask for financial advice.
How much can you earn from passive income investments?
For lots of investors, the appeal is obvious.
A regular income from investments could supplement earnings, support retirement plans or simply make a portfolio work harder.
For an income of around £125 a month, a lump sum would usually be needed. How big a lump sum depends on the yield from the chosen investments.
Investors can think of yield in a similar way to the interest rate on a savings account. But, unlike cash savings, investments in stock or bond markets can fall as well as rise in value, so you could get back less than you invest. The income they pay is also not guaranteed. In return for taking these risks, investors might reasonably expect a higher level of income than they would receive from a typical savings account.
If the investment average yield is 3%, then an investor would need £50,000 to generate an annual income of £1,500 or monthly income of £125. The higher the average yield, the less an investor would need to invest to generate the same amount of income. If the average yield is 5%, then an investor would need only £30,000 for an annual income of £1,500. Yields are variable, and past performance isn’t a guide to the future.
Investors should consider the regularity of distribution payments from funds that they invest in, as most are unlikely to be paid monthly.
Taxing investment income
Tax is an important consideration, too.
Investing via a tax-efficient wrapper like a Stocks and Shares ISA removes this issue, as any income in an ISA is tax free. Investors need to be aware of annual ISA allowances and so any withdrawals should be considered within the investors’ wider financial needs.
And remember that ISA and tax rules can change, and their benefits depend on individual circumstances.
3 funds for generating passive income
Investing in these funds won’t be right for everyone. Investors should invest only if a fund matches their objectives, they understand its risks and charges, and it forms part of a diversified portfolio.
For more detail on each fund, its charges and specific risks, please see the links to their factsheets and key investor information.
All the below funds take charges from capital, which increases the income paid but reduces the potential for capital growth. They also all invest in high-yield bonds, which adds risk.
Artemis High Income
The Artemis High Income fund, as the name suggests, focuses on paying a high income to investors. It invests mainly in bonds but can also invest up to 20% in UK and European shares.
A focus on high-yield bonds and shares that pay a dividend makes it a little different from most bond funds and a higher-risk option.
So, the fund could be a good way to diversify a more conservative income portfolio, with the potential to increase the overall income paid.
The fund had a yield of 5.96% at the end of June 2026.
Royal London Corporate Bond
Royal London Corporate Bond focuses on investment grade bonds and aims to provide an income alongside some capital growth. It usually invests some of the fund in unrated bonds (whose credit quality hasn’t been assessed by a credit ratings agency).
Because this type of bond often gets less attention from investors, the managers can potentially add value by looking in this corner of the market, but these types of bonds are higher risk.
It could form part of an income portfolio focused on the long term and could provide some bond exposure to a portfolio more focused on company shares.
The fund had a yield of 6.12% at the end of June 2026.
Ninety One Diversified Income
The Ninety One Diversified Income fund aims to provide an income with potential for capital growth, while limiting the ups and downs to less than half of the UK stock market. It invests mainly in bonds from around the world, including government debt, but can invest in some company shares too.
We consider this fund to be a step up in risk from cash, with potential for losses, while providing a consistent income over time.
The fund could form part of an income portfolio, providing some stability compared to other, more adventurous, funds. Investors should note that the fund can make investments in emerging markets and derivatives, which add risk.
The fund had a yield of 5.20% at the end of June 2026.