Smooth mode transfer of voltage source inverter (VSI) between grid-connected and stand-alone modes is achieved by operating the inverter in voltage control mode (VCM). However, this operation produces some adverse practical issues such as requirement of large rating VSI, limited real power injection by VSI, negligible operational capability in strong grid, frequent mode transfer, and reactive power exchange with the grid even at nominal grid voltage. This paper proposes a grid-connected inverter to address these issues. An external inductor, satisfying several constraints, is proposed between the load and grid points to enhance the capability of inverter to operate in VCM during voltage disturbances as well as in adverse grid conditions. Also, an improved control algorithm is proposed for reference load voltage generation. This algorithm enables inverter to provide advantages of current control mode (CCM) during normal operation such that grid exchanges only real power; and VCM during grid disturbances by maintaining constant voltage at the load terminal. Moreover, inverter continues to inject DG power for the entire operation. Grid-connected inverter becomes multifunctional with these features resulting in enhanced utilization. This is validated by simulation results.