The recent bitcoin rally has attracted a lot of retail investors making it the ‘new hot favorite’. However, investors are still not very aware of the legal procedures of buying bitcoins.

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It is important to know that selection of the exchange for dealing in cryptocurrencies is one of the key tasks that an interested investor must partake in before dabbling in bitcoins.

In order to invest in bitcoins in India, Ashish Singhal, CEO and co-founder, CoinSwitch Kuber suggests investors to first look at factors like good rates and the nature of KYC procedures that the exchange offers.

"Given, many of the investors are first-time buyers, they should also evaluate security, online reviews and ease of usage of the platform. Doing thorough research is very important. Once, the buyer has selected an exchange they can start with an investment of as low as Rs 100," Singhal suggests.

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The easiest way to buy bitcoin in India is by going to one of the exchanges. All the exchanges in India follow strict KYC and anti-money-laundering norms during account creation and while doing transactions.

“Once investors have a verified account, all they need to do is transfer INR to the exchange's bank account or use their net banking feature to load INR into their exchange wallet and then buy bitcoin with a click of a button. All of this can happen in as less as 30 minutes. The other way to invest in bitcoin is by going to an online peer-to-peer trading platform which acts as an escrow agent to hold the bitcoin and allow the buyer to send money to the seller,” suggests Sathvik Vishwanath, CEO and co-founder at Unocoin.

Also read: Investing in bitcoins? Keep these things in mind

Additionally, investors can also do in-person trading. But, this is usually considered risky as most of the time the buyer will be dealing with an unfamiliar seller.

Investors should also note that with the monetary gains, bitcoin also brings certain risks that the investors should be well aware of.

"To start with, it is still a nascent technology and it could just fail for whatever technical reason. Its value is extremely volatile and it may wash away the entire investment and there is no obligation for anyone to protect one’s investment or buy his bitcoin. A mistake in the security of the bitcoin wallet can consummate the entire bitcoin holdings to the exploiter," Vishwanath warns.

Apart from these, the investors in India should also be aware of restrictions and regulations when it comes to cash handling and cross-border payments.

"India has a history of restricting or banning new technologies before it's legitimate usage becomes fully evident in other developed countries. So in other words, there could be a time where the bitcoin holdings cannot be liquidated. Many in India have considered that the gain by holding bitcoin is higher than these risks involved and have cautiously opted for it," Vishwanath opines.

Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.

(Edited by : Jomy)