What is a Demand Draft (DD)? Features, Uses & Validity

How to Issue a Demand Draft?

Follow the steps mentioned below to issue a Demand Draft:

Step 1: Get a DD form from the bank and fill in all the details.

Step 2: You will have to pay the amount either in cash or from your bank account.

Step 3: All the details mentioned on the form will be verified by the bank authorities.

Step 4: Once the verification is completed successfully and the bank has received money, the bank will issue a Demand Draft.

You can take this Demand Draft and give it to the payee so that he can encash it and complete the transaction.

Types of Demand Draft

There are two types of Demand Draft — Time Demand Draft and Sight Demand Draft.  

Time Demand Draft: This type of demand draft is time specific, which means it will be payable only after a specific period of time. You cannot use this demand draft before the specified period. 

Sight Demand Draft: This type of demand draft is approved only after the payee submits documents required by the bank. The draft will not be passed if the payee fails to submit the documents. 

Advantages of Demand Draft

The advantages of demand draft are as follows:

1. The demand draft is guaranteed by the bank.

1. It is a secure way of transferring large amounts.
2. It does not have any capping on the transfer amount.
3. It can be used across borders for purchasing or investments.
4. It does not require information about the payee.

Risks Involved with Demand Draft

1. The instrument may get stolen or forged
2. The DD may become invalid.

Points to Remember While Getting a Demand Draft

Below listed are some of the points which you should remember when getting a demand draft: 

1. Make sure the beneficiary's name and amount are correctly mentioned in the application form. 

1. In case of higher amounts, use your bank account for payment. Do note that in such cases, cash limits may apply. For example, your bank may have a restriction of up to Rs. 50,000 for demand draft. 

1. Do note that the validity of a demand draft is 3 months, use it within that time frame. 

1. If expired or unused, the DD can be revalidated or refunded with bank approval. 

1. Check the fees applicable for a demand draft before issuing it. 

Validity of a Demand Draft

As per the guidelines laid down by RBI, the validity period of a demand draft is 3 months. It was reduced to 3 months from 6 months with effect from 1 April 2012.

How to Apply for a Demand Draft Offline?

Follow the steps mentioned below to apply for a demand draft offline - 

Step 1: Complete the DD form with all the information required. 

Step 2: You can pay with cash or money from your bank account. 

Step 3: Every detail mentioned on the DD form is confirmed by the bank. 

Step 4: The applicant receives the demand draft from the bank upon successful verification and payment. 

Step 5: To finish the transaction, the applicant must give the payee this DD. 

How to Apply for a Demand Draft Online?

The steps mentioned below explain how you can apply for a demand draft online - 

Step 1: Use net banking to access the official website of your bank. 

Step 2: Look for the "Request and Enquiries" option on the home page of the website. 

Step 3: Look for Issue Demand Draft service and select it. 

Step 4: Choose the bank account that will be used to deduct the DD amount. 

Step 5: Enter the DD information, including the payee's details, purpose, and amount. 

Step 6: State the 5-digit branch code of the bank where you would like to get your DD. 

Step 7: Choose the branch where the DD is to be paid. 

Step 8: Decide whether to have it delivered in person or via courier. 

Step 9: Select Submit to complete the procedure. 

Demand Draft vs Online Payment System

The following are the differences between demand draft and online payment system:

Why are Demand Drafts Popular?

Demand drafts are popular because they can only be paid to the drawee. In addition to this, the fact that the instrument can be prepared from any bank irrespective of having a bank account with them comes in handy.

While the instrument is prepared normally in Indian currency, the draft can be prepared in foreign currency as well. As there is no risk of non-clearance of a demand draft, it is a preferable option to send payments abroad.

Modes of Payment Available for a Demand Draft

Payment Options for Demand Drafts

1. Cash:  Allowed for amounts up to Rs.49,999 (RBI rule). Some banks impose lower limits (e.g., Rs.25,000 for PNB).  
2. Cheque/Bank Transfer: Required for DDs above Rs.50,000. 

1. Digital Payments: Many banks (HDFC, ICICI, Axis) now accept:
   1. UPI (via net banking)
   2. Debit card payments
   3. NEFT/IMPS transfersExample: To issue a DD via HDFC NetBanking, select ‘UPI’ as the payment source."

Note: If the amount of the DD exceeds Rs.50,000, you can only pay for it through cheque.

Charges for Demand Draft

When it comes to the charges associated with making a DD, there is no standard fee. It varies from bank to bank and on the value of the demand draft.

1. Preparing the DD - Usually between Rs.1.50 to Rs.4 per thousand + service tax. If the amount is of a low value, then flat charges may apply.
2. Cancellation charges - Generally range between Rs.100 and Rs.300.

Privileged/preferred customers of the bank may get preferential charges.

RBI Guidelines for Demand Drafts

1. Account Payee Crossing: Drafts of Rs.20,000 or above must include an account payee crossing. 

1. Validity Period: Drafts should clearly display a 3-month validity period. Revalidation processes should be simple. 

1. Cash Drafts: Small-value drafts can be issued against cash, even for non-account holders. Staff must accept small denomination notes. 

1. Duplicate Drafts: For amounts up to Rs.5,000, duplicates can be issued with indemnity, without needing a non-payment confirmation. 

1. Timely Issuance: Banks must issue duplicate drafts within two weeks or pay interest for delays.

How to Track a Demand Draft Status

Tracking the status of a demand draft is essential to ensure it reaches the beneficiary without any issues. Here are the steps to track a demand draft:

• Visit the Bank's Website: Most banks offer online tracking services. Log in to your bank's internet banking portal.
• Enter Details: Navigate to the demand draft section and enter the required details such as the draft number, date of issue, and amount.
• Check Status: The system will display the current status of the demand draft, whether it has been encashed, is pending, or has any issues.
• Contact Customer Service: If online tracking is not available, you can call the bank's customer service or visit the branch where the draft was issued to get an update.

Common Issues with Demand Drafts and Solutions

Demand drafts, while reliable, can sometimes encounter issues. Here are some common problems and their solutions:

• Lost Demand Draft:
  • Solution: Report the loss to the issuing bank immediately. You will need to fill out a form and possibly sign an indemnity bond. The bank may issue a duplicate draft after verifying the details.
• Expired Demand Draft:
  • Solution: Demand drafts are typically valid for three months. If it expires, you need to visit the issuing bank to get it revalidated. The bank will extend the validity after checking the necessary details.
• Incorrect Details:
  • Solution: If the draft has incorrect details (e.g., wrong beneficiary name), return it to the issuing bank for correction. You may need to provide identification and proof of the correct details.
• Fraudulent Draft:
  • Solution: If you suspect a draft is fraudulent, report it to the bank immediately. The bank will investigate and take necessary actions to prevent any loss.

How to Verify a Demand Draft

Verifying a demand draft ensures its authenticity and prevents fraud. Here’s how you can verify a demand draft:

• Check the Watermark: Genuine demand drafts have a watermark that is visible when held against light.
• Verify the Details: Ensure that all details such as the draft number, date, amount, and beneficiary name are correctly printed and match your records.
• Contact the Issuing Bank: Call or visit the issuing bank to verify the draft. Provide them with the draft number and other relevant details.
• Look for Security Features: Modern demand drafts come with various security features like micro-printing, holograms, and special inks. Verify these features to ensure the draft is genuine.

Demand Draft Refund Process

If you need to get a refund for a demand draft, follow these steps:

• Visit the Issuing Bank: Go to the branch where the demand draft was issued.
• Submit the Original Draft: Provide the original demand draft along with the receipt to the bank personnel.
• Fill Out the Refund Form: Complete the necessary refund application form provided by the bank.
• Verification Process: The bank will verify the details and check if the draft has not been encashed.
• Refund Issuance: Once verified, the bank will process the refund. The amount will be credited back to your account or provided in cash, depending on the bank’s policy.