Demand Draft

A demand draft (DD) is a financial instrument that functions as a secure payment method. It is commonly used in financial transactions, particularly for larger sums of money. It is issued by banks to transfer money from one bank account to another.

This post covers information on the demand draft meaning, charges, its advantages, disadvantages, and the steps involved in issuing a demand draft.

What is Demand Draft Form

A demand draft form or DD form is an application that must be filled by the drawer/sender while initiating a transaction from their bank account to the payee’s bank account via demand draft.

It is essential to fill the DD form with all the essential details to initiate the transaction. One can download the demand draft application form online from the official website of their bank or can collect it directly from the respective bank branch.

Components of Demand Draft (DD) Form

Here are the details that are present in the demand draft application form and must be filled in by the payer:

  • Drawer/Applicant details such as name and address of the person issuing the demand draft.
  • Name, address and bank details of the payee.
  • The amount to be paid, both in words and figures.
  • The date on which the demand draft is issued.
  • Name and address of the bank where the demand draft is issued.
  • Signature of the person authorised to issue the demand draft.
  • A unique reference number or code for tracking purposes.
  • A brief description of the reason for issuing the demand draft, if required.

How to Issue a Demand Draft?

To issue a demand draft, one should visit their bank branch and follow the instructions that are provided below:

  • Go to the bank and request a demand draft application form.
  • Fill in the required details on the demand draft form, including the payee's name, amount, and other relevant information.
  • Deposit the amount that should be sent through the demand draft to ensure you have sufficient funds.
  • Pay any fees or demand draft charges that are associated with issuing the demand draft.
  • Submit the form along with any necessary identification documents. The bank will verify your details and the application form.
  • Once your application is approved, the bank will issue the demand draft in the specified payee's name.
  • Collect the receipt or acknowledgement from the bank, including the demand draft number, date, and payee's information. This will help you to track the status of the transaction.

Demand Draft Validity

Generally, the validity of a demand draft ranges from 3 months to 6 months from the date of issuance. However, the demand draft validity period can vary from bank to bank. After the validity period, the demand draft may expire, and you might need to get it reissued or request an extension from the issuing bank.

It is important to check the specific validity period mentioned on the demand draft and make the payment within the mentioned timeframe.

Advantages of Demand Draft

Demand Draft offers several advantages, such as:

  • Demand drafts are pre-authorised and issued for a specific amount, thus ensuring timely and guaranteed payments. 
  • It is not necessary to have a bank account to issue a demand draft, therefore, making it accessible to individuals who donot have a bank account. 
  • It is useful for cross-border transactions as they can be issued in different currencies, making it convenient for international payments.
  • Demand draft is a convenient way for transferring huge amounts of money as it is widely accepted for financial transactions, including paying bills, purchasing goods, houses, cars, etc.
  • It also does not reveal the payer’s bank account details to the payee, thus ensuring the privacy of the payer.

Disadvantages of Demand Draft

Demand drafts are a secure way to make payments. However, there are certain risks associated with demand drafts. Here are some of the disadvantages of demand drafts:

  • Since a demand draft is a pre-authorised payment, cancelling a demand draft can be challenging, and the process can be time-consuming.
  • Demand drafts can take time to clear if the encashment is not done on time. This can lead to delays in receiving funds.
  • If the demand draft is stolen or lost, it is difficult to recover the money, and the bank will not be responsible for replacing the money.
  • A demand draft is valid only for 3 months. Hence, if the payment is not made within this time frame, the payee will be at risk of losing the funds.
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