How to generate passive income from ASX ETFs

You don't just have to invest in the big four banks for their dividends. ETFs can help generate income.

| More on:
Happy young couple saving money in piggy bank.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Australian share market is a great tool for investors that want to generate passive income.

And if you're not a fan of stock picking, don't worry.

That's because there are exchange traded funds (ETFs) out there that allow you to avoid picking individual stocks and focus purely on income generation.

Which ASX ETFs could be used to generate passive income?

The team at Betashares has been looking at the different options that investors have available to them and have picked out a few to consider.

The first group of ASX ETFs we will look at are equity income options. It commented:

Equity income can provide an attractive income stream from a portfolio of equities, often with distributions paid monthly or quarterly. Some strategies may offer tax advantages, such as franking credits, helping investors maximise their after-tax returns. Investors may benefit from potential appreciation in the value of the underlying stocks.

The fund manager has picked out the Betashares Australian Top 20 Equity Yield Maximiser Fund (ASX: YMAX) and the Betashares Global Income Leaders ETF (ASX: INCM) as two to consider.

In respect to the former, it aims to produce attractive quarterly income and reduce the volatility of portfolio returns through a covered call strategy over a portfolio of the 20 largest blue chip shares listed on the local share market.

Whereas the Betashares Global Income Leaders ETF aims to track the performance of an index that comprises 100 high-yielding global companies (excluding Australia) that are selected for their potential to generate attractive and sustainable income.

Don't forget hybrids

Betashares also highlights that hybrids could be used to generate passive income. It said:

Hybrids generally offer a higher level of income than shares or fixed income, with a greater level of capital stability than shares. They can offer franking credits, improving after-tax returns. Betashares' hybrid funds pay distributions monthly.

One is the Active Australian Hybrids Fund (ASX: HBRD). It aims to provide investors with attractive income returns from an actively managed, diversified portfolio of primarily hybrid securities.

It pays income monthly at a rate expected to be significantly higher than cash and senior bonds, along with franking credits.

Fixed income

Another option for income investors to consider with ASX ETFs is fixed income. Betashares notes:

Fixed income typically offers a higher level of capital stability than equities. Some types of fixed income, particularly long-term government bonds, may offer a negative correlation to equities. This means that the value of the bonds increases as share prices fall, helping to smooth out volatility. It offers a consistent, and more predictable income compared to share dividends, with distributions paid monthly or quarterly.

It is tipping Betashares Australian Composite Bond ETF (ASX: OZBD) and BetaShares Australian Government Bond ETF (ASX: AGVT) as two to consider buying.

OZBD is designed to be a core portfolio allocation for fixed income, aiming to track the performance of an index that provides exposure to a diversified portfolio of high-quality Australian corporate and government bonds.

Whereas the BetaShares Australian Government Bond ETF aims to track the performance of an index providing investors with exposure to a portfolio of high-quality bonds issued by Australian federal and state governments.

Should you invest $1,000 in Advance Zinctek Ltd right now?

Before you buy Advance Zinctek Ltd shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Advance Zinctek Ltd wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ETFs

Woman relaxing on her phone on her couch, symbolising passive income.
ETFs

How to own a portfolio of blue chip ASX stocks in a single trade

This ETF gives you the top Aussie stocks in one foul swoop with an added twist.

Read more »

A bearded man holds both arms up diagonally and points with his index fingers to the sky with a thrilled look on his face over these rising Tassal share price
ETFs

3 exciting ASX ETFs to buy for the long term

Want to invest in global megatrends? These funds could help you.

Read more »

Happy couple enjoying ice cream in retirement.
ETFs

Create a reliable income stream: 3 ASX ETFs with quarterly distributions

These funds pay you every three months to own them.

Read more »

Man looking at an ETF diagram.
ETFs

Where to invest $10,000 into ASX ETFs this month

Let's see why these funds could be worthy of investor attention right now.

Read more »

A man wearing a red jacket and mountain hiking clothes stands at the top of a mountain peak and looks out over countless mountain ranges.
ETFs

3 reasons why the Vanguard Australian Shares Index ETF (VAS) is a good buy for the long-term

The VAS ETF has a number of pleasing characteristics.

Read more »

A stopwatch ticking close to the 12 where the words on the face say 'Time to Buy' indicating its the bottom of the falling market and time to buy ASX shares
ETFs

3 of the best ASX ETFs to buy and hold for 10 years

These funds could be quality picks for buy and hold investors. Let's find out why.

Read more »

ETFs

The best ASX ETFs to buy to build a super strong portfolio

These funds offer investors access to some of the best stocks in the world (and Australia).

Read more »

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
ETFs

I think this ASX ETF is an unmissable buy

This fund offers everything that I’m looking for.

Read more »