Yes, you can.
Just disable AVG and install avast (or choose customized installation without Standard Shield, Internet Mail provider, etc.).
After boot, disable the providers of avast that you won’t use.

If so then what options do I need take during the installation of Avast to have it only as an on-demand scanner.

Run ashSimple.exe for on-demand scanning and update. Just click the propter icons on the skin.
Oh, avast can be set to automatic update (if aswUpdSv.exe is running as a Windows XP Service).

Anyway, sorry, you’re losing avast that is far better than AVG.
My system I have the contrary, AVG is the on-demand (second) scanner :stuck_out_tongue: