This paper presents the grounding design and fault analysis of a modular multilevel converter (MMC) based multi-port flexible interconnection device (FID) for future distribution networks. Based on the requirements of the FID, zig-zag transformer, large reactance grounding, and mid-point grounding schemes are investigated. Characteristics of these grounding schemes are analyzed and compared under both single line-to-ground (SLG) fault on the AC side and single pole-to-ground (SPG) fault on the DC side. Based on the performances of the grounding schemes, zig-zag transformer grounding is proved to be more attractive on both medium and low voltage sides of the proposed FID system.