Money Market Fund

What is a 'Money Market Fund'

A money market fund is an investment whose objective is to earn interest
for shareholders while maintaining a net asset value (NAV) of $1 per
share. A money market funds portfolio is comprised of short-term, or less
than one year, securities representing high-quality, liquid debt and
monetary instruments. Investors can purchase shares of money market
funds through mutual funds, brokerage firms and banks.
BREAKING DOWN 'Money Market Fund'
A money market fund's purpose is to provide investors with a safe place to
invest easily accessible, cash-equivalent assets. It is a type of
mutual fund characterized as a low-risk, low-return investment. Since
money market funds have relatively low returns, investors such as those
participating in employer-sponsored retirement plans, might not want to
use money market funds as a long-term investment option because they
will not see the capital appreciation they require to meet their financial
goals.
Pros and Cons of Money Market Funds
Aside from being low risk and highly liquid, money market funds may be
attractive to investors because they have no loads, which are fees mutual
funds may charge for entering or exiting the fund. Some money market
funds also provide investors with tax-advantaged gains by investing in
municipal securities that are tax-exempt at the federal and/or state level. A
money market fund might also hold short-term U.S. Treasury securities,
such as T-bills; certificates of deposit (CDs); and corporate commercial
paper.
A downside of money market funds is they are not covered by federal
deposit insurance. Other investments with comparable returns, such as
money market deposit accounts, online savings accounts and certificates
of deposit, are covered. However, money market funds are considered

safe investments and are regulated under the Investment Company Act of
1940.
New Rules for Money Market Fund Managers
Until 2014, money market funds were allowed to fix their net asset value
(NAV) so it would always trade at $1 per share. In their history, only three
money market funds have been forced to break the $1 NAV. As of 2016,
the most recent occurrence was during the financial crisis of 2008, which
caused a run on money market fund assets. To avoid a future occurrence,
the U.S. Securities and Exchange Commission (SEC), issued new rules for
the management of money market funds for the purpose of providing them
with more stability and resilience. The new rules place tighter restrictions
on portfolio holdings and introduce triggers for imposing liquidity fees and
suspending redemptions. The rules also require fund managers to utilize a
floating NAV instead of a fixed $1 NAV. For some investors, this introduces
the risk of principal where it never existed before. The floating NAV rule is
not likely to affect individual investors who invest in funds designated as
retail money market funds.

What are money market funds?

A money market mutual fund is a type of fixed income mutual
fund that invests in debt securities characterized by their short
maturities and minimal credit risk. Money market mutual funds
are among the lowest-volatility types of investments. Income
generated by a money market fund can be either taxable or taxexempt, depending on the types of securities in which the fund
invests.
Regulations from the U.S. Securities and Exchange Commission
(SEC) define three categories of money market funds based on

investments of the fund government, prime and municipal. SEC

rules further classify prime and municipal funds as either retail or
institutional based on investors in the fund.

Categories of money market mutual

funds based on investments
The types of debt securities held by money
market mutual funds are required by federal
regulation to be very short in maturity and
high in credit quality. All money market funds
comply with industry-standard regulatory
requirements regarding the quality, maturity,
liquidity, and diversification of the funds
investments. Investments can include shortterm U.S. Treasury securities, federal agency
notes, Eurodollar deposits, repurchase
agreements, certificates of deposit, corporate
commercial paper, and obligations of states,

cities, or other types of municipal agencies

depending on the focus of the fund.
* A repurchase agreement is an agreement to buy a security at
one price and a simultaneous agreement to sell it back at an
agreed-upon price.

Classification of prime and municipal money market

mutual funds based on investors
Retail prime and retail municipal money market mutual funds
have policies and procedures reasonably designed to limit all
beneficial owners to natural persons (i.e., individual investors).
These funds may continue to seek to maintain a stable $1.00 net
asset value (NAV), but are subject to potential liquidity fees and
redemption gates (i.e., the fund may impose a fee upon the sale
of your shares, or may temporarily suspend your ability to sell
shares, if the funds liquidity falls below required minimums
because of market conditions or other factors).
Institutional prime and institutional municipal money market
mutual funds are funds that do not qualify as retail funds i.e.,
they may be held by institutional investors. These funds are
subject to potential liquidity fees and redemption gates, and will
price and transact at a floating NAV (meaning that the NAV will be

priced to four decimal places, e.g. $1.0000, and will experience

fluctuations from time to time).
Government money market mutual funds, including U.S. Treasury
funds, are available to both retail and institutional investors, and
are not subject to potential liquidity fees, redemption gates, or a
floating NAV.

Investors who might consider money market funds

Money market funds may be appropriate for customers who:

Have an investment goal with a short time horizon.

Have a low tolerance for volatility, or are looking to diversify
with a more conservative investment.

Need the investment to be extremely liquid.

While the returns on money market funds are generally not as
high as those of other types of fixed income funds, such as bond
funds, they do seek to provide stability, and can therefore play an
important role in your portfolio. Investors can use money market
funds in a few ways:

To offset the typically greater volatility of bond and equity

investments.

As short-duration investments for assets that may be needed

in the near term (such as an emergency fund).

As a holding place for assets while waiting for other

investment opportunities to arise (such as in the core position
for your brokerage account).

Evaluating a money market fund

A money market fund is a type of fixed income mutual fund with
very stringent maturity, credit quality, diversification and liquidity
requirements intended to help it achieve its goals of principal
preservation and daily access for investors. Customers should
determine when picking a money market fund that its
characteristics align with their investment objectives and
strategy.

The objective for many money market funds is typically to

provide current income consistent with principal preservation.

U.S. Treasury and government money market funds

potentially can offer a lower credit risk and return profile than
prime money market funds.

Municipal money market funds may be appropriate for nonretirement accounts that are not already tax-shielded.

Advantages of money market funds

Stability
Money market mutual funds are considered to be one of the
least volatile types of mutual fund investments.

Liquidity
Its easy to settle your brokerage account trades in other
investments, or retrieve funds from a money market mutual
fundgenerally assets are available by the next business day.

Security
The funds are required by federal regulations to invest in shortmaturity, low-risk investments, making them less prone to
market fluctuations than many other types of investments.

Short duration
Because the duration of money market mutual funds is so short
at maximum a few months -- they are typically subject to less
interest rate risk than longer-maturing bond fund investments.

Diversification
Money market mutual funds tend to hold many different
securities, with limited exposure outside U.S. Treasury funds to
any single issuer.

Potential tax advantages

Some money market funds invest in securities whose interest
payments are typically exempt from federal, and in some cases,
state income taxes. These funds can be a potential source of
stable, tax-efficient income.

Risks of money market funds

Credit risk
Unlike typical bank certificates of deposit (CDs) or savings
accounts, money market mutual funds are not insured by the
Federal Deposit Insurance Corporate (FDIC). Although money
market mutual funds invest in high-quality securities and seek to
preserve the value of your investment, there is the risk that you
could lose money, and there is no guarantee that you will
receive $1 per share when you redeem your shares.

Inflation risk
Because of the safety and short-term nature of the underlying
investments, money market mutual fund returns tend to be
lower than those of more volatile investments such as typical
stock and bond mutual funds, creating the risk that the rate of
return may not keep pace with inflation.
Prime money market funds:

Foreign exposure
Entities located in foreign countries can be affected by adverse
political, regulatory, market, or economic developments in those
countries

Financial services exposure

Changes in government regulation and interest rates and
economic downturns can have a significant negative effect on
issuers in the financial services sector, including the price of
their securities or their ability to meet their payment obligations.
All prime and municipal money market funds:

Liquidity risk
The fund may impose a fee upon the sale of your shares, or may
temporarily suspend your ability to sell shares, if the funds
liquidity falls below required minimums because of market
conditions or other factors.
Institutional prime and institutional municipal money
market funds:

Price risk
Because the share price of the fund will fluctuate, when you sell
your shares they may be worth more or less than what you
originally paid for them.

Frequently asked questions

Why can yields on money market mutual funds be very
low?
Money market mutual funds own a well-diversified pool of high
quality, short-dated, interest-paying securities, and pass along

the income earned on those securities (after fees) to the funds

shareholders. When the yields on the securities in which money
market mutual funds invest are quite low, the yields that the
funds are passing along to their shareholders are also quite low.
The interest rate policy of the Federal Reserve (the Fed) is a key
driver for money market rates.
How short is short term for the securities in which
money market mutual funds can invest?
The rules that govern money market mutual funds permit the
funds to buy only securities that mature in 397 days or less. At
least 30% of the funds total assets must be invested in Weekly
Liquid Assets, which can consist of cash, direct obligations of the
U.S. government such as U.S. Treasury bills, certain other U.S.
government agency debt that is issued at a discount and matures
within 60 days or less, or securities that will mature or are
payable within five business days. For taxable funds, at least 10%
of the funds total assets must be invested in Daily Liquid Assets,
which can consist of cash, direct obligations of the U.S.
government, or securities that will mature or are payable within
one business day. The remaining investments can be in longerterm issues, provided the overall weighted average maturity of
the fund is 60 days or less.
Why doesnt the government offer insurance on money
market mutual funds?
The U.S. government does not offer insurance on any type of
mutual fund. Money market mutual funds, like bond and stock

mutual funds, are investments, and, as such, are not guaranteed.

It is important that investors understand that.

TQM - QUALITY FUNCTION DEPLOYMENT

In the world of business and industry, every organization has
customers. Some have only internal customers, some just external
customers, and some have both. When you are working to
determine what you need to accomplish to satisfy or even
delight your customers, then the tool of choice is quality
function deployment or QFD.

Background
Quality professionals refer to QFD by many names, including matrix
product planning, decision matrices, and customer-driven
engineering. Whatever you call it, QFD is a focused methodology
for carefully listening to the voice of the customer and then
effectively responding to those needs and expectations.
First developed in Japan in the late 1960s as a form of cause-andeffect analysis, QFD was brought to the United States in the early
1980s. It gained its early popularity as a result of numerous
successes in the automotive industry.

Methodology

In QFD, quality is a measure of customer satisfaction with a

product or a service. QFD is a structured method that uses
the seven management and planning tools to identify and prioritize
customers expectations quickly and effectively.
Beginning with the initial matrix, commonly termed the house of
quality, depicted in Figure 1, the QFD methodology focuses on the
most important product or service attributes or qualities. These are
composed of customer wows, wants, and musts. (See the Kano
model of customer perception versus customer reality.)
Once you have prioritized the attributes and qualities, QFD deploys
them to the appropriate organizational function for action, as shown
in Figure 2. Thus, QFD is the deployment of customer-driven
qualities to the responsible functions of an organization.
Many QFD practitioners claim that using QFD has enabled them to
reduce their product and service development cycle times by as
much as 75 percent with equally impressive improvements in
measured customer satisfaction.

Quality Function Deployment (QFD)

By: Chi-Ming Chen and Victor Susanto

Industrial Engineering 361: Quality Control
A. Introduction
QFD (quality function deployment) is defined as a method for developing a design quality aiming
at satisfying the consumer and then translating the consumer's demand into design targets and
major quality assurance points to be used throughout the production phase. QFD is a way to
assure the design quality while the product is still in the design stage (Akao, 1990) [1]. From this
definition, QFD can be seen as a process where the consumers voice is valued to carry through
the whole process of production and services.

QFD consists of two components which are deployed into the design process: quality and
function. The " quality deployment" component brings the costumers voice into the design
process. The "function deployment" component links different organizational functions and units
into to the design-to-manufacturing transition via the formation of design teams. (Lockamy &
Khurana, 1995) [6]
B. History of QFD
QFD was invented in Japan by Yoji Akao in 1966, but was first implemented in the Mitsubishis
Kobe shipyard in 1972, possibly out of the teaching of Deming. Then later it was adopted and
developed by other Japanese companies, notably Toyota and its suppliers.
In the USA the first serious exponents of QFD were the 'big three' automotive manufacturers in
the 1980's, and a few leading companies in other sectors such as electronics. However, the uptake
of QFD in the Western world appears to have been fairly slow. There is also some reluctance
among users of QFD to publish and share information - much more so than with other qualityrelated methodologies. This may be because the data captured and the decisions made using QFD
usually relate to future product plans, and are therefore sensitive, proprietary, and valuable to
competitors. (Hutton, 1997) [5]
C. Processes of QFD
According to Lockamy and Khurana (1995) [6], the idea of QFD is timing, performance
evaluation, and resource commitment. And the four phases of QFD are:
1. Product concept planning. It starts with customers and market research with leads to product
plans, ideas, sketches, concept models, and marketing plans.
2. Product development and specification. It would lead to the development to prototypes and
tests.
3. Manufacturing processes and production tools. They are designed based on the product and
component specifications.
4. Production of product. It starts after the pilot have been resolved
After the products have been marketed, the customers voice is taken again.
D. Benefits of QFD
According to Don Clausing, the author of Total Quality Development book, pointed out that the
QFD has been evolved by product development people in response to the major problems in the
traditional processes, which were:

1.
2.
3.
4.
5.
6.
7.
8.
9.

Disregard the voice of customer

Disregard the competition
Concentration on each specification in isolation
Low expectations
Little input from design and production people into product planning
Divergent interpretation of the specifications
Lack of structure
Lost information
Weak commitment to previous decisions

E. Tools of QFD
Matrix diagrams, which are very useful to organize the data collected, help to facilitate the
improvement process. They can be used to display information about the degree to which
employee expectations are being met and the resources that exist to meet those expectations. The
structure in which QFD uses to organize information is known as the House of Quality.
In its broadest sense, the QFD House of Quality displays the relationship between dependent
(WHATS) and independent (HOWS) variables (Woods, 1994) [8]. Figure 1 shows the typical
House of Quality.
This House of Quality should be created by a team of people with first-hand knowledge of both
company capabilities and the expectations of the employee. Effective use of QFD requires team
participation and discipline inherent in the practice of QFD, which has proven to be an excellent
team-building experience.

Figure 1 The Typical House of Quality

F. Example of successful QFD implementation

A successful story of QFD can be seen at the Chrysler Motors Corporation. The QFD at Chrysler
Motor Corporation was formally launched in September 1986, but its first application was begun
in June 1986.
Chrysler implemented the QFD in four-stage process: (1) spreading awareness, (2) developing
successful case study and examples to motivate subsequent teams, (3) company-wide training and
education on QFD techniques and philosophy, and (4) adopting QFD as business philosophy.
In the beginning, QFD idea was not widely accepted in the company. For many QFD was
perceived as requiring additional time and effort. Such opinions led to organizational and
perceptual barriers regarding the successful implementation of QFD.
Due to various resource constraints, Chrysler management was sometimes unable to authorize
first-hand customer research. In such cases teams were encouraged to document what they knew

concerning the customer requirement, based on their experiences. Often team members simulated
customers by actually evaluating competing vehicles, and reviewing customer ratings.
The result of using QFD in Chrysler, in the launch of LH platform for mid-size cars was
successful. The total product design cycle took approximately 36 months, versus the historical
cycles ranging from 62 to 54 months. Only 740 people were required in the QFD program, while
1600 people were required in the historical environment. Also, by focusing on the customer
requirement instead of only cost, Chrysler made innovative design changes that are gaining
acceptance in marketplace. (Lockamy & Khurana, 1995) [6]

G. Conclusion
QFD is a good system to be implemented in organization or industry, which can be seen from the
examples mentioned above. QFD does not design to replace the existing organization design
process by any means, but rather support the organizations design process. And it also helps
bring the customers voice into the production process to reduce the unnecessary cost. Cutting
production time is also very beneficial to the companies.
However, QFD has not been widely accepted in the USA compared to Japan (42% or more of
Japanese companies have adopted QFD to improve their quality). In the future we hope QFD can
be more adopted and researched in the American manufacturing and service organizations.