SOCIAL investing - buying only into ``good-works'' mutual funds that avoid such products as liquor, tobacco, or armaments - has been given a boost by the Gulf war. And that makes good sense, says Peter Kinder, an investment adviser in Cambridge, Mass. Mr. Kinder maintains that investing money requires a hard look at one's personal convictions. What you don't want to do, he says, is ``participate in companies that violate'' your deepest sense of ethics. Thus, Kinder and his associates have put together a new index for social investing - the Domini Social Index - a list of stocks aimed at duplicating the actual day-to-day movement of the overall stock market while avoiding undesirable companies. The Index, used by an investment trust fund offered by a Boston bank, tends to track the Standard & Poor's 500 index. Kinder, who is president of Kinder, Lydenberg, Domini & Co., a social-investment research firm, is no longer so unusual in the world of high finance. Although ``social investing'' was scoffed at a few decades back, an estimated 21 ``good-will'' mutual funds are now in existence. Eighteen of these are oriented towards individual investors, and three towards institutional investors. Some, such as the Pax World Fund and Dreyfus Third Century Fund, are well known. Many have posted impressive performance levels, despite their ethics-based screening policies. The Pax World Fund, a balanced fund (investing in both stocks and bonds) based in Portsmouth, N.H., ranked No. 1 in its category during 1990, says John Feeley, an analyst with Lipper Analytical Services. Pax World had a total return of 10.5 percent. The average return for all 65 balanced funds Lipper monitors was negative - a minus 0.21 percent. Because of the war, the fund is now attracting new money from investors not wishing to be invested in defense firms, says Anthony Brown, manager for Pax World Fund. ``Since the beginning of this year, new money has been coming in over redemptions at a rate of about $1 million a week,'' says Mr. Brown. Pax World Fund has assets of about $133 million, compared to about $54 million in 1986. Whether the fund will post a high performance this year remains uncertain, says Brown. Since Jan. 1 total return has been up 5.7 percent. That compares to a gain of 10.5 percent in the S&P 500 index. Brown believes the market is overvalued. So last week Pax World made a decision to shift its portfolio away from a typical 70 percent holding in equities to 60 percent in bonds and only 40 percent in equities. ``When Iraqi soldiers give up en masse in the desert sometime in the next few weeks, that will be the high point of the market,'' Brown says. After that, he adds, investors will once again focus on underlying weaknesses within the US economy. The new heavy weighting for bonds in the Pax World portfolio (mainly housing-related issues) should offset any descent in the market, Brown argues. Dreyfus Third Century was also a fair performer last year. The fund posted a total return of about 3.56 percent. That was less than some alternative investments, including nongrowth funds. But it was 26th out of 267 growth funds. The Domini Social Index, which Kinder's company oversees, is based on 400 companies; businesses cannot be linked to liquor, tobacco, defense, South Africa, or certain adverse environmental or work-related practices. Kinder's investment firm has no tie to the actual fund, which is the Domini Social Index Trust, a no-load, diversified, open ended trust. It is managed by State Street Bank & Trust Company in Boston. Kinder's firm begin the Domini index in May 1990, and subscriptions in the trust began Aug. 15. (Initial investment: $1,000). The trust will actually start up when enough investment commitments are on hand to duplicate the full index of 400 companies, Kinder says. The index is up about 5.33 percent for January, compared to 4.42 for the S&P 500, he says. For 1990, his index was up 3.5 percent, compared to 2.7 percent for the S&P 500. -PATHNAME- /usr/local/etc/httpd/plweb/DBGROUPS/paper/database/tape/91/mar/week10/fwal25.