Effect of Gd substitution at Y-site on the structural and magnetic properties of Y1-xGdxMnO3 (x=0, 0.05) nanoparticles prepared by conventional solid state reaction method has been studied. The structural study using X-ray diffraction pattern indicates the hexagonal structure with P63cm space group for all the samples. The average particle size for all the samples lies in the range of 30-40 nm as confirmed by X-ray diffraction and transmission electron microscopy analysis. The change in a and c lattice parameters confirm the substitution of Gd at Y-site. Magnetization versus temperature measurements show enhanced magnetic moment and an increase in Neel temperature with Gd-doping. Spin glass behavior is observed at low temperature in all the samples. Exchange bias effect has been observed at 5 K after field cooling the samples which is ascribed to the formation of antiferromagnetic-ferromagnetic (AFM-FM) core-shell structure of the nanoparticles. A significant improvement in the dielectric properties of Gd-doped samples has also been observed.