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What Is A Demand Draft? Research Team | Posted On Friday, October 26,2018, 06:10 PM

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What Is A Demand Draft?



A demand draft popularly called a DD is a negotiable instrument issued by a bank. What is a negotiable instrument? A negotiable instrument guarantees payment and gives the name of the payee. A negotiable instrument cannot be transferred to any other person. The DD is issued by the bank to the drawer (One who has to make the payment), directing another bank or the own bank branch to pay a specific amount of money to the payee. (Person who has to be paid the amount).

Demand Drafts are much safer than cheques. A cheque can be issued even if there are insufficient funds in your bank account. In the case of a DD, the drawer (one who makes the payment), has to pay before the bank issues the DD. So a DD cannot bounce.

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What Is A Demand Draft?

How does a DD work? You don’t need to have a bank account to avail the draft facility. You just fill the DD draft Form, pay money to the bank and get the DD issued. You can pay for the DD via cheque or cash.

Types of demand draft:

DD are essentially of two types:

  • You have the sight demand draft where the DD is approved and paid only after the verification of documents. The payee will have to present the requisite documents and only then will he receive the amount.
  • You have the time DD, which is payable only after a specific period of time. This DD cannot be drawn from the bank, before this time period.

Demand Draft Details

  • Collect the DD form at the bank and fill online.
  • Fill up important details like mode of paying for the cheque, beneficiary name, place of encashing the draft, cheque number, bank account number, signature and so on.
  • Submit PAN Card details on paying Rs 50,000 or more by cheque.
  • You have to pay the DD making charges.

Banks may charge Rs 50 + GST for an amount of Rs 5,000-10,000 for DD’s issued by cheque.

Features of demand draft:

  • DD is payable on demand.
  • It is an unconditional order for payment.
  • It bears no stamp.
  • The draft can be negotiated by endorsement and delivery.
  • The purchaser of the DD need not be a customer of a bank.
  • DD is drawn by a banker on its branch or upon another bank.
  • DD is not payable to bearer.
  • DD cannot be stopped except by court order. Amount is refunded if DD is not delivered.

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How To Cancel DD?

Banks accept the money given, be it in cash or cheque, and you have to go to the bank if you want to cancel the DD, as there’s no online provision available.

You have made cash payment: Make sure to submit the original draft along with the bank receipt to get the refund. The bank has DD cancellation charges of around Rs 100-150.

You have made payments through cheque: You have paid through cheque for the DD. The bank has deducted charges from your bank account. You have to submit the original draft with a duly filled cancellation form. The amount is credited back to your account after a deduction of around Rs 150.

What if you have misplaced the DD or lost it in post? This could be a problem as the bank will ask for proof to show the DD was issued. The bank could co-operate and give you a copy of the draft receipt. This is a prelude to DD cancellation.

See also: Types Of Cheques

DD Form:

Bank Branch: This is the bank branch issuing the DD.

To Pay: Drawee Details

Date: Date of issue of the DD.

Amount/Words: This is the amount payable to the drawee in words.

Amount/Figures: The amount payable to the drawee in figures.

DD Number: This is a unique Number assigned to the DD.

Signature: Signature of the bank branch officer.

How to encash demand draft?

It should take about 30 minutes. Bank branches encash DD’s immediately, but if there’s a crowd at the bank, it could take some time. If a DD amount is more than Rs 20,000 it will not be paid in cash. The DD amount is credited directly to the bank account. This is done to avoid fraudulent transactions. This is for same banks. For other banks you have a maximum of 3 days.

What is DD Fraud?

DD Fraud through rare can happen. Digital information can be misused and with sophisticated equipment around, DD fraud can happen. DD fraud is when a fake DD is issued in the name of a payee. This makes it hard to track the person who issued the DD from the bank. The payee would have to suffer the consequences.

Tips to keep you safe from DD fraud:

Keep information on the drawer: While this is not fool proof, it helps narrow down the search.

Keep a copy of the draft: Keep a colored photocopy in a safe place.

Engage legal action: Banks take legal action against payees in case of fake DD’s. Banks could file an FIR against you/payee. You must file a counter FIR and take legal help and advice.

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