Updated from Aug. 31

Mutual fund giant Fidelity Investments Tuesday announced it is cutting fees on five stock-index funds, making them among the lowest-cost funds of their kind in the industry.

Effective today, expense ratios for the


Fidelity Spartan 500 Index Fund, the


Spartan Total Market Index Fund, the


Spartan Extended Market Index Fund, the

Spartan U.S. Equity Index Fund and the


Spartan International Index Fund will be capped at 0.10%. The previous costs of the funds ranged from 0.19% for the Spartan U.S. Equity Index fund to 0.47% for the international fund.

Domestic and international stock index funds charge an average 0.87% in fees, according to fund-tracking firm Morningstar.

Fidelity's price cut is a direct challenge to the Vanguard Group, which is well-established as an industry leader in low-cost index funds. For instance, Fidelity's Spartan 500 Index fund is now priced 0.08% lower than the

(VFINX) - Get Report

Vanguard 500 Index Fund.

"It is the latest move in an aggressive effort over the past 18 months to scale back fees, expenses and commissions on a number of our products in order to ensure that we are positioning ourselves at the head of the pack in a very competitive marketplace," said Jeff Carney, president of Fidelity Personal Investments.

Boston-based Fidelity, the country's largest mutual fund company, has been cutting fees over the past year and a half, even prior to the market-timing trading scandal that led to a number of firms agreeing to reduce fees as part of their settlements with regulators.

Vanguard spokesperson Rebecca Cohen says Fidelity's move is not the first time fund families have waived or temporarily reduced fees. She says the practice was common in the late 1980s, and she also cited a Lipper study that says 44% of general equity funds waived fees in 2003.

Cohen also notes that "there's more to indexing than low costs," highlighting the ability of longtime Vanguard index guru Gus Sauter to balance cash flows and minimize trading commissions in the company's funds.