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We have integrated managed service identity with azure functions & sql database which is working fine from azure environment but has issue when we connect from local environment, the function app is not able to connect to database and we have followed steps given in following document https://docs.microsoft.com/en-us/azure/app-service/app-service-web-tutorial-connect-msi.

With msi integration is there any known issue connecting to sql database from Visual studio?

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There are a couple of possible reasons your local user doesn't have access rights in the SQL database.

Please refer to the blog post Managed Identity - Part III. It, among other things, holds this information:

Apparently, when using a Microsoft account (mine’s an Outlook.com one, migrated over from the good old Hotmail days) you need to explicitly specify the tenant id you want to use. This can either be the Directory ID of your Azure Active Directory that you can find on the Azure Active Directory properties blade, or the xxx.onmicrosoft.com name associated with it.