From this video you will learn What is Demand Draft & how it works, Characteristics of a demand draft, Types of demand drafts, Advantages of demand draft, disadvantages of demand draft, Demand Draft for beginners in english.
Demand Draft:
One of the payment instruments in India, demand draft is popularly known as DD. A Demand draft is a cash instrument used by an individual to make a transfer payment from one bank account to another.
A demand draft is a negotiable instrument. The meaning of negotiable instrument is that it guarantees a certain amount of payment mentioning the name of the payee.( Payee is the person or party receiving the money, the drawer is the person requesting the demand draft, the bank paying the money is the drawee).
Bank issues Demand draft to the client (drawer) to direct a bank (drawee) to pay the specified amount of money to the specified person (payee).
Characteristics of a demand draft:
- It is issued by the bank to another bank.
- It is only payable to the payee that is written on the demand draft and it is payable only on demand.
- As mentioned, this does not require signature to authorize the transfer of funds.
- DD are issued mostly in situations where the parties are unknown to each other and lack trust.
Types of demand drafts:
Demand drafts are of two types
1. Sight Demand draft
2. Time draft
Advantages of demand draft:
- Unlike the case of cheque, the transfer of the required amount is guaranteed through DD.
- DD is convenient as it does not have any maximum amount limit and does not require any payee’s banking information.
- It serves the population of India that is dependent on offline instruments.
- Demand draft is secure, and unlike in the case of internet banking, there is no chance of hacking.
- There is no need of internet in case of DD , and this instrument can be very useful in remote places.
Disadvantages of Demand draft:
- DD may get stolen, forged or altered with.
- In case the funds are cashed out by the wrong person, the bank is not responsible for replacing the lost money.
- The Demand draft is not valid after a certain or prescribed time.
- DD represents a transaction that has already been taken place and cannot be cancelled once it is delivered to the payee.
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