A combination of an index swap with a total return swap (TRS) whereby one counterparty agrees to exchange the total return of a specified index for another rate of return, usually a floating rate (LIBOR) or a bond index. The total return includes both the income component and the price change of a particular investment asset/ instrument. For example, if the underlying is a bond index, the total return usually consists of coupon payments plus bond price change.

A typical total return index swap pays an investor the periodic total return of a given index. The investor finances the swap at LIBOR. Notwithstanding the factoring of the prepayment possibility to the periodic total return, the notional balance remains constant over the swap tenor. In this sense, the total return is the sum of coupon return, price change and paydown adjustment.