DD stands for Demand Draft. Demand Draft is one of the financial instruments that is used to make payments easier. Sometimes Demand Draft and Cheque are taken as similar things however there are a variety of facts that makes them apart. Unlike cheques, DD is a prepaid instrument means DD is issued after taking the amount that’s why it is a secure way to get payments also which is a major drawback in the case of a cheque where cheque bouncing is a common issue in everyone’s life.
What is the Demand Draft?
Demand draft is a negotiable financial instrument issued by the bank (under The Negotiable Instruments Act, 1881) in which a person (drawer) requests the bank to make DD for him by which his targeted institution or company or a person gets their payment without worrying about any mishappening. In short, when a bank issues a demand draft to a client (drawer), it instructs another bank (drawee) or one of its branches to pay a specific amount to the designated party (payee).
A DD guarantees a certain amount of payment mentioning the name of the payee. It cannot be allocated to another person under any circumstances. Demand Drafts are more secure than cheques. This is because the drawer has to pay before issuing the bank draft to the bank whereas a cheque can be issued without ensuring sufficient funds in your bank account. That's why cheques might bounce but drafts guarantee secure and timely payment. DDs are payable on demand that's why are called Demand Drafts.
Notably, it cannot be paid to the bearer but the beneficiary has to present the instrument directly to the branch. It can also be collected through the clearing mechanism of the bank.
Characteristics of a Demand Draft:
- It is a secure way to get payment.
- It is generally valid for 3 months.
- It’s transferred from one bank to another.
- It makes payment easier.
- It could also be discounted, like cheques.
Who involves in Demand Draft?
- Drawer- The person who approaches to make a demand draft.
- Drawee- The bank that gives money to the receiver.
- Payee- The person who presents the DD to the bank to get money.
How Do You Get a Demand Draft?
The procedure to apply for a DD is simple, the drawer means the person who wants to apply for DD has to fill the form online or has to visit the bank himself for the application then, after submitting the application and giving documents for verification bank takes the money in the form of cash or cheque then transfers that money to another bank to make payment to the payee.
When is a Demand Draft Used?
- A demand draft is used when the transaction is going to be placed between two strangers or people having trust issues.
- Demand draft ensures full guaranteed payment.
- Demand draft ensures no bounce like cheques. For example- Most of the colleges accept the fees in cash and DD only just because of the reliability of the DDs.
Charges for DD:
1. Preparation of DD- For preparing the DD, bank charges usually a fixed amount for less value transaction and range between 1 rupee to 5 rupees per thousand for larger transaction
2. Cancellation of DD- For cancellation, there’s generally a charge of 100 to 300 rupees.
Expiration and Revalidation of DD’s:
A Demand Draft is often valid for 3 months after the date of issue. If not presented during the period then gets expired and once expired money cannot be transferred to the drawer’s account. After the validity expiration, only the drawer could apply for revalidation, in this process bank verifies all the detail again and then reissues the draft one more time for 3 months. The main point to be noted here is that a revalidated DD cannot be revalidated again.
Types of Demand Drafts
1. Sight demand draft
The working of sight draft is quite similar to a cheque as both have to be paid whenever presented. Sight drafts are used for international transactions. When presented instantly money could be yielded after document verification. Only when specific documentation has been examined, the proposal is accepted and the transaction happened. If any of the needed documents are not submitted, the payee will not be able to collect the money.
2. Time demand draft
Time Draft is also known as Date Draft. These types of drafts have a future date of payment. Time drafts are used as a transaction place between different countries like at the time of export and import when presented payment comes after 15 days. It is payable only after a specific period of time and before that, it cannot be drawn from the bank.
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