A demand draft (DD) is a prepaid payment instrument issued by a bank that guarantees payment to the specified payee. The payer requests the draft from their bank, which immediately debits the amount from their account and issues the draft. Unlike personal checks, demand drafts cannot bounce because the bank ensures that funds are available before issuing them.

Priyal needed to pay ₹5 lakh for her university tuition fees. The university requested a demand draft to ensure secure payment. She visited her bank and requested a DD of ₹5 lakh in favor of the university. The bank debited ₹5 lakh from Priyal’s account and issued a demand draft payable to the university. The university received the ₹5 lakh without any delay, and Priyal’s tuition fee was successfully paid.

In the 20th century, demand drafts became widely used in India where they were seen as a safe way to make payments for school fees, business transactions, and property deals.