A total return swap (TRS) entails the payment of fixed or floating interest in return for the total return of a reference asset. The total return is the capital gain or loss from the underlying asset in addition to any interest or dividends generated by the asset during the life of the swap. In essence, total return swaps are unfunded credit derivatives, meaning no upfront payment is made by the total return receiver at inception. In other words, the total return receiver pays no upfront amount in return for the total return of the reference asset.

Therefore, an unfunded total return swap, like a vanilla total return swap, allows both parties to gain exposure to a specific asset in cost-effective manner (the asset can be held without having to pay additional costs).