Demand draft in the Indian context is essentially a written order, where a buyer pre-deposits an amount of money in a bank and hands over the ‘written order’ to the seller, so that the seller can ‘demand’ the deposited money from the bank where it way deposited (May not be in the same branch though).
Suppose Mr.A wants to buy a product from a company xyz which costs Rs.600
Instead of giving the money to xyz, Mr.A draws a Demand draft (DD in short) for Rs.600 in favour of xyz by paying Rs.600 (plus an additional commission that goes to the bank utilized) and then hands over the DD to xyz.
In India, DD’s are more frequently used for employment purposes where a company ask its applicants to draw a DD of required amount in its favour.
Most DD’s will have a validity period of 6 month’s. If the beneficiary didn’t produce the DD with in 6 months from the drawn date, then it may be void.
Many Demand draft, essentially consist of 3 variables
MICR number and
Some DD’s may also have the extra 6 digit numbers between MICR and transaction code.
The first variable is the DD number which will of 6 digits, followed by 9 digit MICR code, then followed by the next 6 digits (may not exists in some banks) and lastly the 2 digit transaction code.
As far as the DD CHARGES go, the countries largest bank SBI charges are as follows:
For DD Amount up to Rs.10000, the charge is Rs.30
Above Rs.10000, the charge is Rs.2.50 multiplied by number of thousands.