how can we edit instances in the managed groups because it tells you to take it out of the managed group to edit it .

Here are the sequence of steps that you should follow:

1) Create a new instance template (with new updates on the existing template). You can use "Create Similar" option by selecting  the existing instance template and update new settings.

2) Go to Instance Groups. Select the current live Instance Group and click on "Edit Group". Choose the new instance template from "Instance Template" drop down. Click Save.

3) Next Click on "Rolling Update" , choose "Max Surge" and "Max Unavailable" settings as desired. Click "Update" when done.

4) Click on the instance template group, you will see that the new temple is being applied now as per "Rolling Update" policy.

That’s It 🙂

Hope this helps!