Emergence of COVID-19 had profound impact on global stock markets, including Indian mar-ket. Key indices like NIFTY50 and Sensex dropped by approximately 40% within two months in 2020, which also affected major mutual funds, leading to significant depreciation of their Net Asset Value. Securities and Exchange Board of India (SEBI) allows mutual funds to use deriva-tives for hedging purposes, capped at 100% of the scheme's net assets covering debt, equity, and derivatives. However, circular amendment by SEBI in January-2019 permitted covered call strat-egies on constituent stocks of Sensex and NIFTY50 for mutual fund schemes, excluding ETFs and Index Funds. This study investigated whether mutual funds increased their derivative us-age as risk mitigation strategy during COVID-19 pandemic, analyzing derivative holdings from 2019-2023. Surprisingly, findings indicated a decline in derivative holdings in 2020 compared to pre-pandemic levels. Statistical tests and performance evaluation metrics such as T-test, F-test, Treynor Ratio, Sharpe Ratio, and Jensen's calculations were employed to assess mutual fund performance. Although derivative-holding mutual funds didn't outperform benchmarks in aver-age returns, it showcased significantly reduced volatility, offering investors favorable risk-return trade-offs. research sheds light on derivative utilization in Mutual Fund industry, potentially in-forming regulators, fund managers, and investors in their decision-making