With the integration of DGs to utility side, drastic changes in fault current occurs across the system at different locations in a microgrid. In this paper different types of faults in microgrid system are investigated through simulation using Simulink-MatLab. The impacts of inverter interfaced DGs on fault current and importance of adaptive protection issues for islanded and utility microgrid are studied in this paper. Nature of fault currents has been observed at several locations in sample microgrid system through simulation.