A Demand Draft (DD) offers a secure and efficient means of transferring funds from one bank to another. Often referred to simply as a DD, it is a negotiable instrument that assures the payment of a specific sum of money to a designated payee. 

Importance of Demand Drafts

Demand Drafts are integral to modern banking and financial transactions for several compelling reasons:

  1. Bank Guarantee - DDs are guaranteed by the bank, providing the payee with an assurance of the availability of funds.
  2. Convenience for Large Transactions - They are a convenient method for transferring substantial sums without the need for extensive payee information or transaction caps.
  3. Cross-Border Use - Demand Drafts can be employed for international purchases and investments, making them versatile for various financial needs.
  4. Does not need Payee information - Unlike normal electronic transactions, DD does not need payee information. 

Features of Demand Drafts

Demand Drafts exhibit the following distinctive features:

  1. Payable on Demand - As the name implies, a DD is payable upon demand by the payee, ensuring timely disbursement.
  2. No Stamp Required - Unlike some financial instruments, a DD doesn't necessitate a stamp, simplifying the issuance process.
  3. Negotiable - DDs can be negotiated through endorsement and delivery, offering flexibility in their utilization.
  4. Not Payable to Bearer - DDs are not payable to the bearer but require proper identification, enhancing security.
  5. Court Order for Stoppage - Stopping payment on a DD typically requires a court order, providing a legal safeguard.
  6. Refund for Undelivered DDs - If a DD is undelivered, the amount is refundable, ensuring the drawer's financial security.
  7. No Need to Be a Bank Customer - Purchasers of DDs need not be customers of the issuing bank, promoting accessibility.

Types of Demand Drafts

Demand Drafts come in two main types to cater to diverse financial needs:

  1. Standard Demand Draft: The most common type of DD, also known as Sight Demand Draft, it is used for routine financial transactions.
  2. Time Demand Draft: Similar to a standard DD but payable only after a specific period of time. This type of DD cannot be encashed before that time period.