Tax-free bonds, as the name elucidates, are financial instruments that are free from income tax. They are issued by government-backed entities and offer affordable finance for various development-related projects. When an investor invests in a tax-free bond, the interest earned on that investment is completely exempted from taxation, resulting in a higher effective return for the investor.

Predominantly, the organizations that offer tax-free bonds are quasi-government or government-backed organizations, making these bonds a highly secure investment option.The primary purpose of issuing these bonds is to cater to large-scale infrastructure and development projects in sectors such as roads, railways, power generation, irrigation, and housing, among others.

Investing in tax-free bonds, one can bear multiple advantages, primarily revolving around assurance, security, and tax savings. Firstly, these bonds come with long-term tenure, sometimes extending up to 20 years. This can provide a reliable, steady, and long-term source of income. Secondly, tax-free bonds are usually rated by top rating agencies like CRISIL, ICRA, and CARE, among others, further underlining their safety. Lastly, the most noticeable advantage, as the name suggests, is the tax-free nature of the returns.

Even though the interest rates offered by these bonds may seem lower when compared to other investment options, their post-tax yield is typically higher. This is because, unlike fixed deposits or corporate bonds, the interest earned on tax-free bonds does not attract any tax, resulting in a higher yield for investors in the highest tax bracket.

Despite the numerous advantages of tax-free bonds, it is essential for possible investors to understand the limitations as well. These bonds are typically listed and traded on the stock exchange; hence, their price may fluctuate due to market dynamics. Moreover, these bonds have a lock-in period, during which an investor cannot realize the investment. Lastly, unlike dividend payments, the interest from bonds is paid annually, and not at regular intervals.

In conclusion, tax-free bonds make for an excellent, low-risk investment option for investors in the higher tax bracket looking for stable and assured tax-free returns. The positive contribution to the development and growth of the country's infrastructure is an added moral incentive to invest in these bonds. Therefore, tax-free bonds, when held until maturity, could be a secure and steady source of income, complementing an investor's diversified portfolio. Still, like any investment decision, potential investors should carefully review their financial goals, risk tolerance, and investment horizon before investing in tax-free bonds.