An investor receiving the equity leg gains and loses as the shares do, including dividends at an agreed rate, while paying a funding spread. No shares are bought, so there is no settlement, no custody and often no local tax or registration to handle.
This makes equity swaps the standard route into markets with foreign ownership restrictions or heavy registration requirements, and a convenient way for hedge funds to express short exposure where borrow is difficult.
Costs to check are the financing spread, the dividend pass-through percentage, and reset frequency. Tax treatment of the synthetic dividend differs from an actual dividend in many jurisdictions and has been the subject of significant regulatory attention.
Related: total-return-swap, contract-for-difference, short-selling, prime-broker, dividend, counterparty-risk