Most funds are not fully invested though - they try to hold some cash to meet redemptions. If they have to sell illiquid securitied every time money flows out of the fund they can lose money both from the sale price and from having to mark down their remaining holdings. I also think they have tax reasons to stay a diversified fund. I forget exactly what that means in terms of how much a fund can invest in one position or if cash is considered as a security for that purpose.