written by | April 14, 2022

Everything You Need to Know About Demand Draft

Banks collect and send money in various methods, including the use of promissory notes or bills of exchange. Cheques, bank drafts, and several other subcategories of the same are examples of such tools. While due to the computerised methods of quick money transmission, few of these items exist today, and certain university applications or central applications need you to present a demand draft for payments.

Did you know?

When you want to pay an organisation, you don’t need to sign your signature in the Demand draft.

What is a Demand Draft?

A demand draft, often known as a DD, is a mechanism through which a person or a bank transfers cash from one financial institution to another. Demand drafts are distinct from cheques. Only the banks can issue demand drafts and no individual can issue it. Demand drafts are also considerably safer and pose less danger of fraud than checks because the banks only issue them if the drawers have adequate cash in their accounts, and that is not the same scenario with cheques.

Whenever there’s a big sum of money at stake, the bank issues the demand draft using funds from the user's account who requested it. A drawer is a person or client that demands the demand draft, whereas the institution that pays the cash is the drawee. 

Also Read: What Are The Reasons A Cheque Is Bounced Or Dishonoured?

How Do You Get a Demand Draft? 

You can go to your bank or complete an online form that your bank provides. You must submit information like your bank account number, the payee's full name, and the location of the payee's institution. You must also include the sum of money, the denomination, the purpose for payment, and directions on whether the funds should be sent to you or straight to the recipient. Furthermore, before the issue of DD, you have to pay a charge to the bank.

Uses of Demand Draft

When you buy something online or through a mobile phone, you can use a demand draft. You can also use it whenever your bank account has periodic overdrafts, like paying bills. Other frequent applications involve return item costs; the firm pays the customer payments remotely and transfers across bank accounts. As a result, telemarketers, utility providers, credit card firms, and insurance organisations commonly accept a demand draft.

Types of Demand Drafts

Sight Demand Draft

A Sight demand draft is payable quickly and is commonly used when acquiring items on the foreign market is known as a site demand draft. For instance, if a merchant sends items to a purchaser, the seller retains ownership of the products until the customer gets them. The purchaser can employ a sight demand draft to promptly transfer money to the seller, allowing the vendor to transfer ownership to the purchaser swiftly.

Time Demand Draft

A time demand draft has a predetermined pay time in the future and is not payable right away. It is only fully payable once a specified time has passed after the payee got the items. Certain shipping companies may opt to employ a time-demand draft in international commerce. For instance, importers may release a time demand draft to exporters; however, the release of the final payment is only after 15 days following the receipt of the shipment, products, and the transfer of ownership to the importers.

Safety Regulations 

You can issue it remotely (like through mobile, fax, or electronically) as a signature is not compulsory. Signatures are vulnerable to fraud, as thieves only require your banking details to drain your funds. On the other hand, banks will reject illegitimate demand drafts if they identify questionable behaviour. After placing a demand draft to the payee's account, you will have roughly 90 days to challenge the transaction, based on your bank. Depending on the region, there may be some restrictions to ensure your security.

Difference between Cheque and a Demand Draft

Although it appears to be the same as cheque, there are several distinctions between both. Whereas a check may be easily overridden, a demand draft is more difficult to do so. The following are the primary distinctions between a demand draft and a cheque:

  • DD is solely payable to the entity named on the document and nobody else, but a cheque can be receivable to the holder, based on whether or not it is crossed.
  • Demand drafts instruct one bank to pay a particular amount to some other bank, whereas cheques are used to transfer cash from one bank to another account in a different bank.
  • To create a cheque, just fill in the data in the chequebook and pass over the completed leaf to the recipient; the rest is up to the recipient. The procedure of obtaining a demand draft from the banks, on the other hand, is somewhat lengthy.
  • To obtain a DD, you must go to a bank, complete details, fill in the DD form and make payments over the desk. You can issue a small value of DD by mobile banking or electronic banking.

Demand drafts are only created after examining the drawer's outstanding balance or once the drawer pays enough amount to the bank, and this makes demand drafts a safer alternative because it eliminates the payment rejection on the basis of insufficient funds. When attempting to deal with an unknown entity, it is always preferable to request a demand draft.

Also Read: All You Need To Know About Post-dated Cheques

Charges for making a DD in bank

Even though the Reserve Bank of India has recommended banks to be equitable in their charges to consumers for demand draft service, the bank still does not have a flat rate for demand draft. Each bank imposes its own range of fees for producing a demand draft. In certain circumstances, this pricing fluctuates among banks based on a user's preference points.

What to do if demand draft expires?

After the issuing of the draft, it is acceptable only for three months. If you do not give the draft to the bank within that time frame, it will lapse. After the draft expires, the drawer will not get the money. The receiver will have to go to the bank to have the draft re-verified. Please remember one point that the payee or any other individual cannot visit the bank to revalidate the DD under any circumstances. Before revalidation of the draft, the bank confirms the original facts and prolongs its usage for another three months. There is no possibility of a second revalidation.

Conclusion

A demand draft is an invoice of exchange that provides a reliable, safe, and confidential way of transferring cash to the recipient. It is a conventional method of prepayment transmission via a bank for a small fee. People from rural areas heavily rely on banks for cash transfers, etc. They might be technically inept, thus greatly benefiting from this means of money transmission. In case of a shortage of transmitters or poor internet service in rural locations. Online transactions such as RTGS NEFT are extremely difficult. Hence, demand draft is the ideal promissory note.
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FAQs

Q: What are the RBI's guidelines for demand drafts worth more than ₹20,000?

Ans:

The RBI has provided directions to banks on how to deal with corrupt people who authorise bogus demand drafts. The guidelines state that you can issue DDs for over ₹20,000 with account payee crossing.

Q: Is a demand draft similar to a check?

Ans:

No.Demand drafts and cheques are not similar.

Q: What is the highest cash payment required to issue a draft?

Ans:

Banks may only accept a limit of ₹49,999 since the RBI has issued strict orders not to release a demand draft for more than ₹50,000 in cash.

Q: What is the procedure for issuing a duplicate demand draft?

Ans:

Banks may also produce a duplicate demand draft in the event of a lost or misplaced DD. The bank charges a nominal fee and invalidates the previous draft before issuing a new one. The institution can release a demand draft of ₹5,000 or lower on the premise of acceptable indemnification without getting Non-Payment Advice.

Q: Why do universities favour demand drafts over cheques?

Ans:

Demand drafts are usually chosen by the government and educational establishments since they have a monetary value and they are the safest method to receive payments. Before releasing the draft, the drawer must pay the stipulated amount to the bank, which serves as an assurance for the pledged funds. On the contrary, even account payee cheques do not guarantee that payee will receive the money.

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