A Demand Draft (DD) is a pre-paid negotiable instrument issued by a bank that guarantees payment to a specified individual or organization. Unlike cheques, a demand draft cannot bounce because the amount is paid in advance by the drawer at the time of issuance. This makes it one of the most secure and reliable modes of transferring money, particularly in formal or institutional transactions.

When a customer requests a demand draft, the bank collects the amount (along with applicable charges) and issues the draft in favour of the beneficiary. The beneficiary can then present the DD at the drawee branch to receive payment. As the amount is already with the issuing bank, there is no risk of insufficient funds.

Key Features of Demand Draft:

• Prepaid Instrument: Payment is made before issuance, ensuring reliability.
• Bank Guarantee: The issuing bank takes responsibility for payment.
• Non-Transferable: DDs are generally made payable to a specific person or organization.
• Widely Accepted: Commonly used for educational fees, government payments, or large transactions.

Difference between Cheque and DD: While both are negotiable instruments, a cheque may be dishonoured due to insufficient funds, whereas a demand draft cannot. Additionally, cheques are drawn on the drawerís account, but DDs are drawn by one bank branch on another.

In conclusion, a Demand Draft ensures safe, guaranteed, and traceable payment, making it ideal for transactions requiring high trust and security, especially in cases where electronic fund transfers are not feasible.