The sandbox models the standard Indian fund architecture: a SEBI-registered fund manager (investment manager), a Category I or II Alternative Investment Fund set up as a trust under the Indian Trusts Act 1882, and the Indian operating companies it invests in. Each AIF must be registered with SEBI under the SEBI (Alternative Investment Funds) Regulations 2012, with a minimum corpus of ₹20 crore.

An AIF is set up as a trust, a company, a limited liability partnership, or a body corporate and must be registered with SEBI under Regulation 3 of the SEBI (AIF) Regulations 2012. The sponsor and manager must meet the fit-and-proper criteria in the regulations, and the manager must be a SEBI-registered investment manager — the sandbox shows these as the gatekeeping nodes.

A Category I or II AIF must have a minimum corpus of ₹20 crore per the SEBI (AIF) Regulations 2012, and the minimum investment per investor is generally ₹1 crore — with angel funds under a lower corpus framework (₹5 crore) and a ₹25 lakh minimum ticket. The sandbox's constraint nodes reflect these thresholds.

Category III AIFs are generally not pass-through for income-tax purposes — fund-level tax can arise, creating complexity for domestic funds, unlike Category I/II AIFs which are pass-through under s.10(23FBA) of the Income-tax Act 1961. The sandbox warns on the Category III choice so a fund isn't surprised by a fund-level tax bill.

Registered AIFs must file periodic reports with SEBI, maintain the prescribed valuation and accounting standards under the SEBI (AIF) Regulations 2012, and comply with the investment conditions for their category — and the manager must hold a valid registration to act as an investment manager. The sandbox labels these so the structure isn't designed without the compliance layer.