Should I redeem my short term debt fund investment and park it in FD?

I have invested in short term funds in September 2020 which are performing at 2 to 3 percent. I require the funds by September end 2021. Should I redeem and park it in FD or wait?

--Poornamathi Padmanabhan

Harshad Chetanwala, Co-Founder of MyWealthGrowth a mutual fund advisory firm, based out of Mumbai responds:

Short term funds are debt funds that are ideal for investors who want to invest their money for a period of around one year. Your idea of investing in a short term / duration fund for a period of one year is not wrong. Returns across debt instruments including fixed deposits are low in the last one year. The return of the short-term fund and fixed deposit in the coming six months from now till September should be very close. However, I would like to highlight that your debt fund is subject to volatility whenever there is any movement in interest rate; but this impact is notional. If you think this volatility and notional impact will make you more nervous then you can redeem right now and park the money in a 6-month fixed deposit. Otherwise, you can continue to hold your investment in a short term fund and redeem it in September.