As the investing cheapskate who runs point on the Fool's Champion Funds newsletter service, these are exciting times indeed.

It all started last summer, when Boston-based money management behemoth Fidelity fired a shot across low-cost leader Vanguard's bow. The ammo? Expense ratio reductions. Fidelity slashed the prices on some of its most popular index trackers -- big asset-base funds such as Fidelity Spartan 500 Index (FUND:FSMKX) and Fidelity Spartan Total Market (FUND:FSTMX) -- to just 0.10%.

These fee cuts -- which Fidelity made permanent earlier this year -- had at least two main objectives.

On one level, the firm wanted to fend off the growing threat of exchange-traded funds (ETFs) such as Spiders (AMEX:SPY), Diamonds (NYSE:DIA), and Cubes (NASDAQ:QQQQ). These ETFs, which track the S&P, the Dow, and the Nasdaq 100, respectively, have become increasingly popular with investors because of their flexibility -- they're index funds that trade throughout the day like stocks -- and their expense ratios, which are often lower than those of traditional index mutual funds.

That latter case, however, is getting tougher to make. Indeed, at its new price, Spartan 500 is now cheaper than Spiders, and in the world of index investing, that's a significant development. Why pay anything more than the bare minimum for a fund that merely tracks a benchmark?

The house that Jack built
Fidelity's other goal with the fee cuts was surely to siphon off assets that might otherwise have gone to Pennsylvania-based Vanguard, long known in the industry as the king of the indexing hill. Indeed, shop founder Jack Bogle's name is virtually synonymous with the phrase "passive management," and over the long haul, the firm has made big bucks for shareholders in such staples as Vanguard 500 Index (FUND:VFINX) and Vanguard Total Stock Market (FUND:VTSMX).

Now, however, both of those funds are pricier than their comparable Fidelity rivals. All things being equal -- and in this case they really are -- which fund family would you choose?

Thought so -- and Vanguard seems to have come to the same conclusion.

Evasive action
As a result, last month the firm announced plans to drop the asset thresholds required to invest in its "Admiral" share class, which is significantly cheaper than the shop's "Investor" shares. As a result of the lower minimums, the number of Vanguard investors eligible for Admiral status will jump to roughly 700,000.

Just how much cheaper are Admiral shares? The price tags vary from fund to fund, but as an example, consider this: The Investor class of 500 Index will ding you a relatively gargantuan 0.18%, while the same flavor of Total Stock Market will set you back 0.19%. The Admiral shares of those two funds, on the other hand, go for just 0.09% and 0.10%, respectively.

And that's not all Vanguard is doing to reclaim the cheapskate mantle, either. The shop has its own lineup of ETFs dubbed Vipers (Vanguard Index Participation Equity Receipts), and it's lowered the boom on some of those, too.

ETFs aren't for everyone, of course. By and large, folks who invest consistent amounts month over month should avoid them because of the brokerage commissions they'll pay each time they buy or sell. Those fees can quickly erode any price-tag advantage an ETF may have over a comparable traditional mutual fund rival.

Those with a chunk of change to plunk down all at once, however, should certainly give Vanguard's Vipers the once-over twice: The ETF version of Total Stock Market (AMEX:VTI) is now just a measly .07%, for example, while the recently rolled-out Vanguard Emerging Markets Stock VIPERs (AMEX:VWO) will go for 0.30%, an absolute blue-light special in that particular asset class.

Gnip Gnop
How will Fidelity respond to Vanguard's recent moves? (Cue soap opera organ.) Only the Shadow knows, so stay tuned for further developments. In the meantime, remember these bits of Foolish wisdom:

Investing exclusively in index funds means you can count on lagging the market each year by about the amount of your expenses. Beyond that, there have been plenty of market periods (say, the last five years) when actively managed funds have had it all over their passive brethren. What's more, index funds and active picks can coexist peacefully and profitably in the same portfolio.

Indeed, I think combining both fund flavors is a smart asset-allocation strategy -- provided you pick the right funds.

And helping you do just that is Champion Funds' reason for being. Each month, we bring you the cream of the fund industry's crop -- market-beating funds with cheap price tags, talented managers, and strategies that won't keep you up at night.

Click here for a free trial. I guarantee you'll be glad that you did.

Shannon Zimmerman is chief analyst of Motley Fool Champion Funds. He owns shares of Fidelity Spartan Total Market and Vanguard Total Stock Market. The Fool has a disclosure policy.