Oil-based nanofluids were prepared by dispersing nonconducting fibrous and spherical AlN nanoparticles in transformer oil. In this study, the effects of wet grinding and surface modification of particles on thermal and electrical properties of nanofluids were investigated. Grinding experiments were conducted with high-speed bead mill and ultrasonic homogenizer and nanoparticles were surface modified by oleic acid and polyoxyethylene alkyl acid ester(PAAE) in n-hexane or transformer oil, at the same time. It is obvious that the combination of nanoparticle, dispersant and dispersion solvent is very important for the dispersity of nanofluids. For nanofluids containing 1.0vol.% AlN particles in transformer oil, the enhancement of thermal conductivity was 11.6% compared with pure transformer oil. However, the electric-insulating property of AlN nanofluids was very low due to used dispersant itself. Therefore, the effect of the dispersant on thermal/electrical/physical properties of the transformer oil should be considered before selecting a proper dispersant.