THE Mexico Fund remains one of the world's fastest growing country-based mutual funds. But critics say staid investment policies are impeding even greater profitability.This year the Mexico Fund racked up an impressive 99 percent growth rate measured in United States dollars from Jan. 1 to Aug. 30 and an even more startling 727 percent increase over the past five years, according to its president, Jose Luis Gomez Pimienta. The fund invests only in blue-chip Mexican stocks and is traded on the New York, London, and Stuttgart stock exchanges. Charles Brandes, president of Brandes Investment Management in San Diego, says the fund was a good pick in the past, but he's pessimistic about its short-term future prospects. "Its management has been mediocre," he said in a phone interview. "They have consistently under performed the Mexican stock market." The fund, he adds, has failed to more heavily invest in "some obvious choices," such as the newly privatized phone company, Telmex. Mr. Brandes says many investors interested in Latin America are now looking to Argentina and Brazil, where an annual rate of return can hit 150 percent or more. Mr. Gomez acknowledges that other Latin American country funds may outperform the Mexico Fund this year. However, he points out that stock markets there are "smaller and more volatile. They will go through a period of correction" - going down in value. By contrast, he says, the Mexico Fund has shown the highest growth rate of any country fund from 1986-90, except for 1987, the year of the disastrous Mexican stock market crash. He also pleads guilty to the charge of conservative management. "The fund invests in the prime Mexican companies," says Gomez. "Over 200 firms are listed on the exchange; we only invest in 30." Gomez also acknowledges that the fund usually underperforms the Mexican stock exchange. So far this year, though, it is outperforming it by about 5 percent. Due both to United States security laws and internal policy, the fund limits investment in any one stock to 5 percent of net assets at the time of purchase. Gomez says that policy protects the fund from sharp declines due to fluctuation in any one stock, but also reduces the fund's growth rate in comparison to the whole market. Some other observers give the fund high marks for consistency and good management. Francisco Mota, editor of Boletin Financiero, calls the fund "alluring." Mr. Mota predicts that the Bolsa de Valores, as the market is called in Spanish, will continue to rise and "as a consequence the fund will grow also." Stanley Lanzet, a research analyst with New York's Arnold and Bleichroeder, is also bullish on the Mexico Fund. "The turmoil in Eastern Europe and the USSR means a lot of instability," Lanzet says. "People thinking of investing in Eastern Europe may go to South America, particularly Mexico." Mr. Lanzet says the likely passage of the US-Mexico free trade agreement and Mexico's lower inflation rate this year bode well for businessmen on both sides of the border, and for the Mexican Bolsa. "The Mexican labor rate is 90 percent lower than in the US," Lanzet says. If American companies move their plants to Mexico, "it will allow the US to lower costs to compete with Asia." While Lanzet says that direct investment in key Mexican blue-chip stocks may realize a greater profit, the Mexico Fund remains a good pick for short-term investors unfamiliar with the intricacies of the Mexican Bolsa.