Demand draft is a negotiable instrument which can be used to make payments. When the Demand Draft is presented the amount mentioned has to be paid by the drawee bank.
The demand draft is made payable on a specified branch of a bank at a specified centre. In order to receive payment, the beneficiary or demand draft holder should present the instrument directly to the branch or have it collected by his bank through the clearing mechanism.
How to make a DD?
Individuals can walk into any bank not necessarily where they hold the account. Fill the DD form, submit along with the required amount. If the amount is higher, banks have all the right to keep the copy of your Pan card.
Interesting facts about Demand Draft:
- The features of DD are very much similar to Bill of Exchange not with the cheque.
- Demand drafts are generally used to make payments to college fees or during admission.
- Institutions asks for DD as it will not bounce due to insufficient fund.
- For amount more than Rs 50, 000, the bank will deduct the amount from your account.
- The DD once issued will be valid for three months.
- Duplicate draft, in case of lost draft, up to and including Rs 5,000/- may be issued to the purchaser on the basis of adequate indemnity and without insistence on seeking non payment advice from drawee office irrespective of the legal position obtaining in this regard.
- Banks should issue duplicate Demand Draft to the customer within a fortnight from the receipt of such request.
- There is no need of signature to transfer funds
- In case of DD, once the DD is issued, it cannot be stopped.
- In DD, both the parties are Bank
Reason why DD is preferred
One of the biggest reason why a demand draft is preferred over a cheque is because there is no chance of the demand draft getting dishonoured. A cheque maybe dishonoured for a number of reasons, including lack of funds. Demand drafts are issued by a bank and hence there is no question of the DD bouncing.
Since there is an assurance of payment, most government institutions, educational institutes prefer a demand draft.
These days with the advent of RTGS and NEFT, we are seeing demand drafts increasingly less preferred.