What is a Demand Draft? Meaning, Features & How to Use It

Payable within the same city where the draft is issued.

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What are the steps included in issuing the demand draft? 

Every bank has its own process to issue a demand draft. Here, we will understand the steps for issuing a demand draft through IndusInd Bank as an example. 

Here are the steps required for the issuance of a demand draft in IndusInd Bank: 

1. Visit the nearest bank branch.
2. Fill out the demand draft application form after informing the customer executive.
3. Make the payment of the amount to the bank that you want to transfer through a demand draft. 
4. The bank will apply some charges accordingly and collect those charges. 
5. Once the payment is verified and processed, the bank will give you the demand draft. 
6. Pass the demand draft to the person you want to give it to. 
7.  The payee can deposit the demand draft with their bank for collection and credit to their account, subject to the type of draft.

Hence, these are the steps taken for the demand draft issuance. 

Bottom line: 

A demand draft is a financial tool used by several financial institutions in India. It is a form of secured transaction directly from one bank account to the other through a physical paper instrument. One needs to pay the amount to the bank equivalent to the amount needed to transfer, with additional charges. It is not for the small and frequent payments. Many people might find it confusing in the practical world; this is why LoansJagat tries to resolve such confusion through its well-researched, expert-verified, and accurate blogs and articles. 

FAQs: 

What is a demand draft? 

A demand draft is a financial instrument for transferring money from one bank account to another through physical paper drafts issued by several financial institutions in India. 

Can a demand draft be considered a secured mode of payment? 

Yes, demand drafts can be considered a secured form of payment. 

What are the major advantages of demand drafts? 

The advantages of a demand draft include that it is widely accepted in colleges, offices, etc., and provides better protection than facilities like cheques or cash payments. 

What are the major disadvantages of demand drafts? 

The major disadvantages of the demand draft include that it is charged by many banks in India to perform, and you need to physically deliver the demand draft to the payee to proceed with the transfer. 

Is a demand draft less vulnerable than cheques or cash in terms of crime or illegal activity? 

A demand draft may offer certain payment-security advantages, but it is not immune to fraud or misuse. 

Do we need to provide the money to the bank before it issues the demand draft? 

A demand draft is generally issued against funds received by the bank, along with applicable charges. 

What are the two primary types of demand drafts? 

Sight demand draft and time demand draft are the two primary types of demand draft. 

What is one good feature of the demand draft? 

There is no requirement for the signature from the buyer, as the draft is signed by the bank officials already. 

What abbreviation is given to the demand draft? 

‘DD’ is the abbreviation used for the demand draft by many financial institutions. 

Is DD a form of guaranteed payment? 

DDs are generally issued against funds received by the bank before issuance, which reduces the risk of non-payment due to insufficient funds in the purchaser’s account. Payment remains subject to applicable banking rules and circumstances.